Exam 1: Introduction to Taxation

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?

Name and describe two types of taxes other than the income tax. Give example of each.

Harold is a 40 percent partner in HDT Partnership. At the beginning of the year, his partnership interest basis was $20,000. The partnership had net income of $58,000 for the year and it made an $8,000 distribution to Harold. What is Harold's basis at the end of the year?

By what right does the U.S. levy an income tax on individuals?

_____ 5. The type and degree of connection between a business and a state necessary for a state to impose a tax is referred to as nexus.

Which type of tax is a real property tax?

_____ 16. All limited liability companies (LLCs) can file their tax returns as partnerships.

Two married persons with moderately high incomes will pay more taxes than two single persons with the same income. This is commonly called:

What is a tax?

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. How much tax will Matt pay in the second year (rounded to the nearest dollar) due to this business if they organize the business as an S corporation?

_____ 7. Any current changes to the tax laws are now amendments to the Internal Revenue Code of 2017.

John earns $25,000 and pays $2,000 in taxes. Marcy earns $60,000 and pays $4,000 in taxes. How would you characterize this tax system?

Crystal invested $8,000 cash in CRK Partnership for a 30% general partnership interest. In its first year of operations, CRK lost $15,000. In its second year of operations, CRK lost an additional $14,000. How much of the second year's losses can Crystal deduct in that year?

Which of these persons never pays taxes directly?

What are Adam Smith's four canons of taxation? Briefly describe each.

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 Jerry's basis at the end of the second year if they organize the business as a partnership?

_____ 11. There are three basic taxable entities: the individual, the fiduciary, and the C corporation.

Chloe and Bill, both single with no dependents, plan to marry either immediately before or immediately after year-end. Chloe's income for 2017 is $89,000 and Bill's is $86,000 before subtracting $10,400 for the standard deduction and personal exemption for each. Would they have a marriage penalty or a marriage benefit if they married at the end of 2017?

Which of the following is not a tax credit allowed a corporation?

Which of the following nominal rates does not apply to a C corporation?