Exam (elaborations)
Tax 4001 Midterm (UWF White) (1
Tax 4001 Midterm (UWF White) (1
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Tax 4001 Midterm (UWF White)• The goal of proper tax application is - ANS-tax minimization, not tax avoidance.
Tax - ANS-payment required by an individual or entity, to the government, unrelated to
any specific benefit or service received.
Income taxes - ANS-based on income earned/ taxable
Employment taxes - ANS-Social security, Medicare, and unemployment taxes
Excise tax - ANS-Can be a sin tax( alcohol and tobacco products), other taxes like on
cell phones and gas
Property taxes - ANS-Assessed on real and personal property
Transfer taxes - ANS-Estate tax or gift tax
Tax liability equals - ANS-Tax rate times taxable income
Average tax rate - ANS-Total tax due divided by taxable income
Effective tax rate - ANS-total tax due divided by total income
Marginal tax rate - ANS-The difference of the new total tax from the old total tax divided
by the difference between the new taxable income from the old taxable income.
Total Income - ANS-Taxable and Nontaxable
Taxable income - ANS-Wages, gambling, interest, dividends
Nontaxable income - ANS-Municipal bond interest, life insurance proceeds and child
support
Municipal bond interest - ANS-Encourages people to invest in local investments and
helps the government with lower interest rates
Three tax structures - ANS-Progressive, Proportional, Regressive
, Progressive tax structure - ANS-Income tax( the more income you earn the higher the
rate)
Proportional tax structure - ANS-Medicare tax and sales tax (flat rate)
Regressive tax structure - ANS-Social security tax (there is a tax rate up to a certain
amount of income when that income amount is reached and excess income has a tax
rate of 0%)
Five components or considerations that make up our tax system - ANS-Sufficiency,
equity, certainty, convenience, and economy
Sufficiency - ANS-Should be able to access enough revenue to make sure the
government stays funded
Equity - ANS-Should be distributed evenly among tax papers or fair
inty - ANS-Tax payers should be able to determine what their tax liability will be
Convenience - ANS-Make it easier on the tax payer to pay in the tax, pay as you go
Economy - ANS-Should be little to no cost for government to collect the tax and ensure
compliance
Our current federal tax system can be described as - ANS-Progressive
Tax is defined as - ANS-a payment required by a government agency that is unrelated
to any specific benefit or service received from the government agency
Tax due is calculated based on - ANS-Taxable income
A taxpayers average level of taxation on each dollar of TAXABLE income is -
ANS-Average tax rate
Not all income earned or received by a taxpayer is - ANS-taxable
Corporations filing requirements - ANS-all must file a tax return
Estates and Trusts filing requirements - ANS-Income greater than $6,000 must file a tax
return
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