Exam (elaborations)
TAX 4001_ Exam 1 2019 (1).
TAX 4001_ Exam 1 2019 (1).
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TAX 4001: Exam 1 2019What is the most difficult part about calculating taxes? - ANS-determining the tax BASE,
not the tax rate.
Average tax rate - ANS-total tax / taxable income
Effective Tax Rate - ANS-total tax/total income
marginal tax rate - ANS-change in tax/change in taxable income
or...
(New total tax-Old total tax)/(New taxable income-Old taxable income)
After Tax rate of return on a bond (regular and municipal) - ANS-Example 1-12
Price*before tax return rate=int. inc.*income tax rate=income tax
interest income-income tax=after tax income
after tax income/price=after tax rate of return
When a taxpayer is filing an extension, what is the last day that they can pay without
paying a penalty. - ANS-Individual taxpayers can request an extension of 6 months to
file their tax return. This DOES NOT extend the time that a taxpayer must pay their
taxes. If extension is filed, a taxpayer must estimate the taxes they will owe and must
pay them by 4/15/xx. If taxes are underpaid, the taxpayer will be charged interest on the
taxes owed.
C Corp's return filing day, extension length - ANS-the 15th of the fourth month following
the company's year-end
can request an automatic 6 or 7 months of extension
What is the automatic length of an extension for a partnership or S-corp? - ANS-6
months
Statute of Limitations - ANS-If there is a mistake on a tx return, the taxpayer must file an
amended return to correct the error (requesting refund or pay amount) if the period of
limitation has not passed.
, What is the period of the statute of limitations? - ANS-It is within 3 years of the LATER
of (1)when the return was actually filed or (2) the return's original due date.
Are there exceptions to the statute of limitations? - ANS-Yes, the period can be
extended depending on the circumstances.
If the taxpayer omits items of gross income that exceed 25% of the gross income
reported -- extends to 6 years
For fraudulent returns or failure to file can cause the case to be open indefinitely.
Taxpayers can also request to the IRS extension so that both sides have sufficient time
to resolve issues.
Do corporations have to file a tax return? - ANS-YES! Regardless of their taxable
income
Do estates & trusts have to file a tax return? - ANS-Yes if their gross income exceeds
$600.
Are individual taxpayers required to file a tax return? - ANS-It all depends on their filing
status and gross income (see exhibit 2-1). Gross income thresholds are indexed each
year for inflation.
What determines whether a tax return is required? - ANS-GROSS INCOME, not if a
refund is due or not
Primary authorities - ANS-official sources of the tax law generated by the legislative
branch, judicial branch, and executive/administrative branch. See Exhibit 2-5
What is the primary goal of tax planning? - ANS-maximize the taxpayer's after-tax
wealth while achieving the taxpayer's non-tax goals
What are the 3 tax planning strategies? - ANS-Timing (deferring or accelerating taxable
income
and tax deductions)
Income shifting (shifting income from high to low
tax rate taxpayers)
Conversion (converting income from high to low v
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