Exam 1: Introduction to Taxation

Joe is in the 28 percent marginal tax bracket.He has $50,000 to invest.He can invest in taxable bonds paying 5 percent interest or tax-exempt bonds paying 3.75 percent interest.Which bonds should he invest in?

What is a corporation's annual deduction for capital losses?

Which of the following types of taxes is not levied by the U.S.government?

What is the purpose of the alternative minimum tax?

Ethan received $120,000 in salary in 2015.What is his FICA tax if the Medicare rate is 1.45%,the Social Security rate is 6.2% on the 2015 maximum of $118,500,and the FUTA rate is 6% on a $7,000 maximum?

Which of these entities is taxed directly on its income?

Jerry and Matt decide to form a business.Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest.The business will take out a $25,000 loan to cover the balance of their working capital needs.They expect that the business will have a loss of $38,000 for the first year.In the second year,the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry.Jerry is in the 33% marginal tax bracket and Matt is in the 28% marginal tax bracket.Their marginal tax brackets will not change as a result of profit or loss from this business.What is Matt's basis at the end of the second year if they organize the business as a partnership?

Which of the following statements is false?

Jason purchased a 20 percent interest in JKL Partnership for $20,000 at the beginning of the year.At year-end,the partnership reported net income of $15,000 and distributed $2,000 cash to Jason.What is Jason's year-end basis?

Sara is single and has no dependents.What is the total amount of her standard deduction and personal exemption for 2015?

Briefly compare a sole proprietorship to a corporation as a business entity.

Elena owns 25% of a partnership that reported net income of $100,000 for the year.During the year $5,000 was distributed to Elena from the partnership.How much should Elena include in her taxable income for the year?

Sophia owns 20% of a partnership that reported net income of $130,000 for the year.During the year $18,000 was distributed to Sophia from the partnership.How much should Sophia include in her taxable income for the year?