2011+Principles+of+Business+Taxation+Ch1TB - 145 Chapter 1...

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© 2010 CCH. All Rights Reserved. Chapter 1 145 Chapter 1 Introduction to Taxation TRUE-FALSE QUESTIONS—CHAPTER 1 A distinguishing characteristic of a public good is that there is an effective means of limiting the 1. enjoyment of the good. When a government provides goods or services that affect third parties (unrelated to the transaction), the 2. situation is called an internal good. A regressive tax structure is one in which the average tax rate increases as the tax base decreases. 3. Another name for a fl at tax is a progressive tax. 4. Most state and local property taxes use a single tax rate, making them a type of ad valorem tax. 5. Use taxes complement sales taxes because use taxes ensure appropriate revenues are collected on goods 6. used, consumed, or stored in the state on which in-state sales tax was not paid. Excise taxes may be imposed on the producer of the product or service, or included in the sales price to 7. consumers. Severance taxes are a type of excise tax levied on service providers. 8. Stamps purchased to enable postal delivery services are an example of user fees. 9. A primary difference between the two “death taxes” is that estate tax is levied on the transferor (deceased) 10. and inheritance tax on the recipient. Federal gift taxes are imposed only on the bequests of wealth to bene fi ciaries of deceased persons. 11. For persons dying in 2010, the federal government allows a reduction against estate tax for transfers of 12. $3.5 million or less. FUTA taxes are used to fi nance Medicare bene fi ts and payments to the elderly and disabled. 13. When sole proprietors pay both the employer and employee portions of FICA, the tax is called 14. unemployment taxes. Gross income is a taxpayer’s total income less exclusions. 15. The concept that only the excess of proceeds from the sale of property over the taxpayer’s investment in 16. that property is taxed is the capital recovery doctrine. Tax credits are incentive-based items taxpayers obtain when they invest in or participate in certain 17. activities. A refundable tax credit can only reduce the taxpayer’s tax liability, whereas a nonrefundable tax credit not 18. only reduces the taxpayer’s liability but any excess is returned to the taxpayer. S corporations offer advantages of passing pro fi ts, deductions, and credits through to shareholders but 19. protect their investors from personal liability. The accumulation of various personal expenditures that the federal government allows individuals to 20. offset against their adjusted gross income is the standard deduction. All publicly traded corporations are required to issue audited fi nancial statements prepared in accordance 21. with IRS regulations. Tax avoidance should be at the top of every taxpayer’s list for tax planning. 22.

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