Which of the following statements are NOT true about taxes?
A. Taxes generate revenue for the federal government.
B. Income taxes are due to the IRS on at least an annual basis.
C. All people pay the same amount of tax on the same amount of gross income.
D. You must comply with tax laws. - C - All above are true, except C because marital
status, dependents, deductions, credits, etc. all impact the amount of tax paid as you
will learn about in this class.
The tax system is impacted by political motives and actions.
True or False - True - Tax law is enacted by bills submitted to Congress. Members of
Congress are impacted by their constituents and lobbyists.
Which of the following is not a type of tax?
A. Income
B. Social Security
C. Sales
D. All of the above are types of taxes - D - Income, Social Security, sales, excise, gift,
estate, unemployment are all types of taxes along with others we will learn about.
A person has to be certified by the IRS or their State Society of CPAs in order to
prepare tax returns for others and receive compensation.
True or False - False - Anyone can prepare tax returns and be paid for preparation
services, whether they have been properly trained or are certified. Tax law is
complicated and interpreting and applying tax law requires some understanding of tax,
but unscrupulous tax preparers do exist and will prepare tax returns for a fee without
adequate knowledge or training.
How should the federal government use the taxes paid?
A. To fund government services.
B. To build houses for lawmakers.
,C. To pay for private vacations.
D. All of the above should be uses of taxes paid. - A - We hope our tax revenues do not
pay for lawmakers' houses or private vacations. Unfortunately, sometimes they do!
A tax is defined as
A. A payment requested by a government agency that is unrelated to any specific
benefit or service received from the government agency.
B. A payment required by a government agency that is unrelated to any specific benefit
or service received from the government agency.
C. A payment required by a government agency that is related to a specific benefit or
service received from the government agency.
D. A payment requested by a government agency that is related to a specific benefit or
service received from the government agency. - B - For a tax, a payment is /required/
and is /unrelated/ to the benefit received. Don't we wish it was a request!
Our current federal tax system can be described as being
A. Proportional
B. Regressive
C. Progressive
D. Flat - C - Our current tax system is progressive, in that higher rates are assessed as
taxable income rises.
Tax due is calculated based on total income.
True or False - False - Tax due is calculated based on TAXABLE income which may
include items excluded from tax.
A taxpayer's mean level of taxation on taxable income is based on
A. Effective tax rate
B. Average tax rate
C. Marginal tax rate
, D. Incremental tax rate - B - The average tax rate is the tax due divided by TAXABLE
income. The effective tax rate is the tax due divided by TOTAL income. Marginal tax
rate is like incremental tax rate in that it is based on the taxation on each additional
dollar of income.
Not all income earned or received by a taxpayer is taxable.
True or False - True - Certain types of income are excluded such as municipal bond
interest, life insurance proceeds, etc.
Which of the following is NOT an employment-related tax?
A. Social Security
B. Medicare
C. Unemployment
D. Use - D - All of the others, not including use tax, are considered employment taxes.
use tax is imposed on a business or person for the "use" of an item in a particular
locality, and where sales tax has not been paid.
When evaluating an alternative tax system, it's important to evaluate its sufficiency,
economy, certainty, equity, and convenience.
True or False - True
The equivalent after-tax return for an investment is computed as
A. Pretax return * tax rate
B. Pretax rate / tax rate
C. Pretax return * (1 - tax rate)
D. Pretax return / (1 - tax rate) - C - 6% = 10% (1 - .40)
The Marginal Tax rate measures the tax rate that applies to the next additional
increment of a taxpayer's taxable income (or deductions).
True or False - True - However, if the new income does not move you outside the tax
bracket you are in, the marginal tax is just that bracket's tax rate.
Transfer taxes include gift taxes, estate tax, and excise taxes.
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