Question 1

Horizontal equity is defined in terms of taxpayers in similar situations whereas vertical equity is defined in terms of taxpayers in different situations.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following principles encourages a vertically equitable tax system?

Accepted Answer

A) Pay as you go 
B) Economy 
C) Income effects 
D) Ability to pay principle 
E) None of these 
A) Pay as you go 
B) Economy 
C) Income effects 
D) Ability to pay principle 
E) None of these

Question 3

Taxes influence many types of business decisions but generally do not influence personal decisions.

Accepted Answer

A) True 
 B)False

Question 4

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income.
Eliminating the current system of withholding income taxes directly from employee paychecks would:

Accepted Answer

A) Violate the convenience criterion of federal taxation 
B) Increase the rate of compliance 
C) Make collection of federal income taxes easier 
D) All of these 
E) None of these 
A) Violate the convenience criterion of federal taxation 
B) Increase the rate of compliance 
C) Make collection of federal income taxes easier 
D) All of these 
E) None of these

Question 5

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income.
If Leonardo and his wife file married filing jointly in 2016, what would be their average tax rate (rounded)?

Accepted Answer

A) 15.00% 
B) 25.00% 
C) 18.49% 
D) 23.54% 
E) None of these 
A) 15.00% 
B) 25.00% 
C) 18.49% 
D) 23.54% 
E) None of these

Question 6

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds.
What is Manny's current marginal tax rate for year 2016?

Accepted Answer

A) 18.49% 
B) 28.00% 
C) 15.61% 
D) 22.86% 
E) None of these 
A) 18.49% 
B) 28.00% 
C) 15.61% 
D) 22.86% 
E) None of these

Question 7

A flat tax is an example of a graduated tax system.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following represents the largest percentage of average state tax revenue?

Accepted Answer

A) Sales tax 
B) Individual income tax 
C) Other 
D) Property tax 
E) None of these 
A) Sales tax 
B) Individual income tax 
C) Other 
D) Property tax 
E) None of these

Question 9

Milton and Rocco are having a heated debate regarding a national sales tax. Milton argues that a national sales tax is a proportional, vertically equitable tax. Rocco argues that a national sales tax would be a regressive, vertically inequitable tax. Explain both sides of the argument.

Accepted Answer

A sales tax by definition is a proportio

Question 10

Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?

Accepted Answer

A) Only issue treasury bonds 
B) Only cut funding to various federal projects 
C) Only increase federal spending 
D) Issue treasury bonds and cut funding to various federal projects but not increase federal spending 
E) None of these 
A) Only issue treasury bonds 
B) Only cut funding to various federal projects 
C) Only increase federal spending 
D) Issue treasury bonds and cut funding to various federal projects but not increase federal spending 
E) None of these

Question 11

Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%.
What is Curtis's after-tax rate of return on the city of Athens bond?

Accepted Answer

A) 1.96% 
B) 2.52% 
C) 7.00% 
D) 9.00% 
E) None of these 
A) 1.96% 
B) 2.52% 
C) 7.00% 
D) 9.00% 
E) None of these

Question 12

Which of the following is true regarding tax-advantaged assets?

Accepted Answer

A) They are typically subject to excise taxes to account for their low explicit taxes 
B) A corporate bond is typically considered a tax-advantaged asset 
C) They are often subject to implicit taxes 
D) A corporate bond is typically considered a tax-advantaged asset and They are often subject to implicit taxes are correct but not They are typically subject to excise taxes to account for their low explicit taxes 
E) None of these 
A) They are typically subject to excise taxes to account for their low explicit taxes 
B) A corporate bond is typically considered a tax-advantaged asset 
C) They are often subject to implicit taxes 
D) A corporate bond is typically considered a tax-advantaged asset and They are often subject to implicit taxes are correct but not They are typically subject to excise taxes to account for their low explicit taxes 
E) None of these

Question 13

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2016, what is his effective tax rate (rounded)?

Accepted Answer

A) 18.49% 
B) 16.57% 
C) 12.41% 
D) 25.00% 
E) None of these 
A) 18.49% 
B) 16.57% 
C) 12.41% 
D) 25.00% 
E) None of these

Question 14

The state of Georgia recently increased its tax on a carton of cigarettes by $2.00. What type of tax is this?

Accepted Answer

A) A sin tax 
B) An excise tax 
C) It is not a tax; it is a fine 
D) A sin tax and An excise tax are correct 
E) None of these is correct 
A) A sin tax 
B) An excise tax 
C) It is not a tax; it is a fine 
D) A sin tax and An excise tax are correct 
E) None of these is correct

Question 15

Implicit taxes are indirect taxes on tax-favored assets.

Accepted Answer

A) True 
 B)False

Question 16

Estimated tax payments are one way the federal income tax system addresses the "certainty" criterion in evaluating tax systems.

Accepted Answer

A) True 
 B)False

Question 17

Nick and Jessica are married taxpayers that file married filing separately. Jessica earns $250,000 of taxable income per year. Nick earns $130,000 of taxable income per year. Using the appropriate U.S. tax rate schedule for year 2016, how much tax does each of them pay? What are their marginal and average tax rates? How much tax would they save, if any, if they filed jointly? (Round the tax rates to 2 decimal places, e.g., .12345 as 12.35%)

Accepted Answer

Nick would owe $30,606.50 and Jessica wo

Question 18

Which of the following is not an example of a graduated tax rate structure?

Accepted Answer

A) Progressive tax rate structure 
B) Proportional tax rate structure 
C) U.S.Federal Income Tax 
D) Regressive tax rate structure 
E) None of these 
A) Progressive tax rate structure 
B) Proportional tax rate structure 
C) U.S.Federal Income Tax 
D) Regressive tax rate structure 
E) None of these

Question 19

Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%.
If Curtis invested in the Initech, Inc. bonds, what would be his after-tax rate of return from this investment?

Accepted Answer

A) 5.04% 
B) 7.00% 
C) 6.48% 
D) 2.52% 
E) None of these 
A) 5.04% 
B) 7.00% 
C) 6.48% 
D) 2.52% 
E) None of these

Question 20

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income.
What is Leonardo and Theresa's effective tax rate for year 2016 (rounded)?

Accepted Answer

A) 15.00% 
B) 18.53% 
C) 21.11% 
D) 28.00% 
E) None of these 
A) 15.00% 
B) 18.53% 
C) 21.11% 
D) 28.00% 
E) None of these

Exam 1: An Introduction to Tax

Horizontal equity is defined in terms of taxpayers in similar situations whereas vertical equity is defined in terms of taxpayers in different situations.

Which of the following principles encourages a vertically equitable tax system?

Taxes influence many types of business decisions but generally do not influence personal decisions.

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. Eliminating the current system of withholding income taxes directly from employee paychecks would:

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo and his wife file married filing jointly in 2016, what would be their average tax rate (rounded)?

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds. What is Manny's current marginal tax rate for year 2016?

A flat tax is an example of a graduated tax system.

Which of the following represents the largest percentage of average state tax revenue?

Milton and Rocco are having a heated debate regarding a national sales tax. Milton argues that a national sales tax is a proportional, vertically equitable tax. Rocco argues that a national sales tax would be a regressive, vertically inequitable tax. Explain both sides of the argument.

Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?

Which of the following is true regarding tax-advantaged assets?

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2016, what is his effective tax rate (rounded)?

The state of Georgia recently increased its tax on a carton of cigarettes by $2.00. What type of tax is this?

Implicit taxes are indirect taxes on tax-favored assets.

Estimated tax payments are one way the federal income tax system addresses the "certainty" criterion in evaluating tax systems.

Which of the following is not an example of a graduated tax rate structure?

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. What is Leonardo and Theresa's effective tax rate for year 2016 (rounded)?

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters