18. A tax rate that decreases as the tax base decreases is an example of what kind of tax rate
19. Jake earned $15,000 and paid $1,500 of income tax; Jill earned $40,000 and p
What is meant by compensation for services? Give some examples.
Compensation for services is the broad category used by the IRS to encompass all
forms of economic benefit a taxpayer may receive as a result of an
employee/employer arrangement. Exam
What type of tax is the U.S. federal income tax? Explain your answer.
The federal income tax is a progressive tax. As the tax base increases, the rate of
tax increases. Tax rates range from a low of 10% to a high of 35%.
What is the definition of tax base and how does it affect the amount of tax that is levied?
The tax base is the dollar amount upon which the tax rate is applied in order to
determine the actual tax. Income, dollar sales, and property value are the
What type of tax is a sales tax? Explain your answer.
The sales tax is a proportional tax. A proportional tax is a tax where the tax rate
remains at the same rate regardless of the tax base. Most county or state sales
taxes are the same regardless
What is meant by a progressive tax? Why do you think the government believes it is a more
equitable tax than, say, the regressive tax or proportional tax?
A progressive rate structure is a rate structure where the tax rate increases as the
Name the three types of tax rate structures and give an example of each.
Progressive U.S. federal income tax
Proportional flat-tax usually leveled on property or sales at the state or local
Regressive Social Security Tax
2. For tax year 2004, what proportions of individual income tax returns were filed on a Form
1040EZ, Form 1040A and Form 1040? What proportion were electronically filed?
In 2004, 61% of individual income tax returns were filed using a Form 1040, 2
1. Give a brief history of the income tax in the United States.
The first federal income tax was enacted in 1861 to help finance the Civil War and
was discarded soon thereafter. In 1894, another income tax was promulgated by
Congress to raise addi
52. What are the three types of tax authority? Who issues each type?
Statutory Authority issued by Congress
Administrative Authority issued by the IRS
Judicial issued by the various courts in the U.S. judicial system
51. Discuss the concept of tax authority. How does tax authority help taxpayers and tax
preparers report tax items properly?
Tax authority represents to body of law, regulations, judicial decisions, and other
items that provide taxpayers and tax p
A change to a 17% flat tax could cause a considerable increase in many taxpayers taxes and
a considerable decrease in the case of others. Explain this statement in light of the statistics in
Table 1-3 of the text.
Those with taxable incomes above
Explain what is meant by regressive tax. The social security tax is considered a regressive
A regressive tax rate is one where the tax rate decreases as the tax base gets
larger. The social security tax is assessed on the first $97,500 o
20. Margaret earned $15,000 and paid $1,500 of income tax; Mike earned $40,000 and paid
$4,000 of income tax. The tax rate structure they are subject to is:
What is the most common way taxpayers pay their income tax liability during the year?
The vast majority of taxpayers pay their annual tax liability through income tax
withholdings deducted their paychecks by their employer and remitted to the
What is the amount of the permitted deduction for single and married taxpayers who use the
On Form 1040EZ, taxpayers can take a permitted deduction on line 5 of $8,750 if
the taxpayers filing status is single or $17,500 if their filin
Explain why unemployment compensation is taxable.
Unemployment compensation is paid to an individual as a result of that person
becoming unemployed. The compensation is, in effect, a substitute for taxable
wages. Thus, it is taxable just as wages
What federal tax forms do taxpayers normally receive to inform them of the amount of wages
and interest they earned during the year?
Normally, wages are reported to taxpayers on a W-2 form and interest is reported
on a Form 1099-INT.
What is the definition of interest?
Interest is compensation for the use of money with respect to a bona fide debt or
obligation imposed by law (e.g., judgments, tax payments, installment sales).
50. Xavier and his wife Maria have total W-2 income of $95,558. They will file their tax
return married filing jointly. They had a total of $14,117 withheld from their paychecks for
federal income tax purposes. Using the tax tables, determine the amount o
49. Sheniqua, a single taxpayer, had taxable income of $63,914. Her employer withheld
$13,274 in federal income taxes from her paychecks throughout the year. Using the tax
tables, would Sheniqua receive a refund or would she be required to pay additional
35. Using the information in Table 1-3, determine the average amount of taxable income per
tax return, in dollars, for each of the ranges of taxable income provided.
In each case, the average taxable income per return is calculated by div
33. Eddie, a single taxpayer, has W-2 income of $42,487. Using the tax tables, his tax
34. Arno and Bridgette are married and have combined W-2 income of $93,455. They
received a refund of $
32. A married taxpayer has taxable income of $77,381. You have calculated tax liability
using the tax tables and using the tax rate schedules. What can you say about the two
a. Tax liability determined using the tax tables will be more than tax l
30. Elizabeth determined her tax liability was $3,942. Her employer withheld $3,492 from
her paychecks during the year. Elizabeths tax return would show
a. a refund of $450
b. a refund of $3,492
c. tax due of $450
d. tax due of $3,942
28. Unemployment compensation income is reported to a taxpayer on a Form
29. On a Form 1040EZ, the amount of the permitted deduction from income for taxpayers
filing a joint return is: