WGU C237 Taxation I definitions Assessment Test Actual Questions And Complete Answers.

Horizontal equity - correct answer similarly situated taxpayers should be treated equally Vertical Equity - correct answer taxpayers who are not similarly situation should not be treated the same Tax base - correct answer the amount to which the tax rate is applied to determine the tax due Marginal tax rate - correct answer the tax rate applied to an incremental amount of taxable income that is added to the tax base average tax rate - correct answer Total tax liability / amount of taxable income effective tax rate - correct answer total tax liability / total income Surviving Spouse - correct answer For 2 years after spouse death if: -have not remarried by the end of year -be a us citizen or resident -have qualified to file joint return in year of death -have at least 1 dependent son or daughter living at home during the entire year -pay over half of the expenses of the home Head of Household - correct answer -be unmarried as of the last day of the tax year, or married to nonresident alien, or abandoned -not be a surviving spouse -be US citizen or resident -pay over half of the costs maintaining household in which a dependent lives for more than half of the tax year Discriminant Function System DIF - correct answer used to classify returns to be selected for audit Tax brackets - correct answer 10 15 28 33 35 39.6 capital gain - correct answer is a gain or loss from the sale or exchange of a capital asset capital assets - correct answer are assets other than those listed in Sec 1221 Splitting Income - correct answer consists of creating additional taxable entities, especially corporations in order to reduce an individuals effective tax rate shifting income - correct answer the process of transferring income from one family member to another; such as gifts of stock or bonds to family members who are in lower tax brackets cash receipts and disbursements method - correct answer most common gross receipts do not exceed 1mil when cash is received not earned cash, property, or services accounts receivable has no value constructive receipt - correct answer a cash basis tax payer may report income in the year in which it is actually or constructively received. Accrual method - correct answer generally report income in the year it is earned. When all the events have occurred that fix the right to receive the income and when the income can be determined with reasonable accuracy Prepaid Income - correct answer generally taxable in the year of receipt, even with accrual based accounting *accrual basis tax payers may defer recognizing income in certain cases if the method of account for the sale is the same for tax and financial accounting purposes hybrid method - correct answer combination of cash and accrual Series EE exclusion = - correct answer [series EE interest] x [Net qualified educational expenses]/ ([series EE interest] + [principal]) Royalties - correct answer proceeds paid to an owner by others who do business under some right belonging to the owner. stock dividend - correct answer can not be taxed because they are not realized income; unless given a cash option capital gain dividend - correct answer a distribution by a regulated investment company (mutual fund) of capital gains realized from the sale of investments in the fund constructive dividend - correct answer distributions that are intended to result in a deduction to the corporation and taxable income to the shareholder alimony - correct answer deduction to payor; taxable to payee Must: be made in cash pursuant to divorce, separation, or written agreement Terminate at death of payee not be designated as anything else be between people living separately child support & property settlements - correct answer not subject to tax or deductible Unearned income - correct answer income from investments other than work Punitive damages - correct answer are always taxable even if physical injury is involved Amount Realized = - correct answer Cash + FMV + debt assumed by buyer Adjusted Basis = - correct answer Initial Bases + Capital additions - Capital recoveries Capital Recoveries - correct answer Deductions for casualty losses Depreciation & amortization Capital Additions - correct answer add value; prolong life; adapt to a different use