Federal Taxation Exam Questions Answered Correctly! (100% Pass)
incremental basis - Answers federal income tax is changed on an incremental basis rather than a
complete revision basis. Under so-called incrementalism, when a change in the tax law is deemed
necessary by Congress, the entire law is not changed, but specific provisions of the tax law are added,
changed, or deleted on an incremental basis. The complexity of the federal income tax today is from the
incremental nature of tax legislation.
largest sources of federal revenues - Answers *individual income taxes--largest
*Social Security (FICA) taxes and corporate income taxes are two other major revenue sources.
tax base - Answers amount to which the tax rate is applied to determine tax due. i.e. (taxable income)
tax rate - Answers percentage rate applied to the tax base.
progressive tax rate - Answers where the rate of tax increases as the tax base increases.
i.e. federal income tax.
proportional tax rate (flat rate) - Answers the rate of tax is the same for all taxpayers, regardless of the
level of their tax base. This is generally used for real estate taxes, state and local sales tax, personal
property taxes, customs duties, and excise taxes.
regressive tax rate - Answers tax rate decreases with an increase in the tax base (e.g., income). The
Social Security (FICA) tax is regressive because a fixed rate of tax for both the employer and employee is
levied up to a ceiling of $110,000 for 2012.
**sales tax, which is levied by many states, is also regressive when measured against the income base.
corporations - Answers federal corporate income tax reflects a stair-step pattern of progression that
tends to benefit small corporations.
marginal tax rate - Answers the tax rate applied to an incremental amount of taxable income that is
added to the tax base. (tax rate based on applicable tax base.... e.g., taxable income of
$100,000.....marginal tax rate is 28%)
average tax rate - Answers computed by dividing the total tax liability by the amount of taxable income.
effective tax rate - Answers total tax liability divided by total economic income.
total economic income - Answers includes all types of economic income that a taxpayer has for the year.
corporate income tax (franchise tax) - Answers franchise taxes usually are based on a weighted-average
formula consisting of net worth, income, and sales.
wealth transfer taxes - Answers imposes a single tax on transfers of property taking place during an
individual's lifetime (gifts) and at death (estates).
, gift tax - Answers is an excise tax that is imposed on the donor for transfers of property that are
considered to be a taxable gift. $13,000 annual exclusion is allowed per donee. In addition, an unlimited
marital deduction is allowed for transfers between spouses.
*** charitable contributions are effectively exempted from the gift tax because an unlimited deduction
is allowed.
federal estate tax - Answers part of the unified transfer tax system that is based on the total property
transfers an individual makes both during his or her lifetime and at death.
property taxes - Answers based on the value of a taxpayer's property, which may include both real
estate and personal property. Real estate taxes are a major source of revenue for local governments.
federal excise taxes and customs duties - Answers federal excise taxes are imposed on alcohol, tobacco,
gasoline, telephone usage, production of oil and gas.
sales tax - Answers imposed on retail sales of tangible personal property.
employment taxes - Answers social security (FICA) and federal and state unemployment compensation
taxes.
individual taxes - Answers federal income tax---progressive--
state income tax---progressive
federal gift tax---progressive
federal estate tax--- progressive
corporation taxes - Answers **federal corporate income tax--progressive
**state corporate income tax--proportional or progressive
state franchise tax--proportional
other types of taxes - Answers property taxes--proportional
excise taxes--proportional-- alcohol, telephone
sales tax--proportional--
FICA and self-employment taxes-- regressive
unemployment taxes-- regressive
taxpaying entities - Answers individuals
C corporations
incremental basis - Answers federal income tax is changed on an incremental basis rather than a
complete revision basis. Under so-called incrementalism, when a change in the tax law is deemed
necessary by Congress, the entire law is not changed, but specific provisions of the tax law are added,
changed, or deleted on an incremental basis. The complexity of the federal income tax today is from the
incremental nature of tax legislation.
largest sources of federal revenues - Answers *individual income taxes--largest
*Social Security (FICA) taxes and corporate income taxes are two other major revenue sources.
tax base - Answers amount to which the tax rate is applied to determine tax due. i.e. (taxable income)
tax rate - Answers percentage rate applied to the tax base.
progressive tax rate - Answers where the rate of tax increases as the tax base increases.
i.e. federal income tax.
proportional tax rate (flat rate) - Answers the rate of tax is the same for all taxpayers, regardless of the
level of their tax base. This is generally used for real estate taxes, state and local sales tax, personal
property taxes, customs duties, and excise taxes.
regressive tax rate - Answers tax rate decreases with an increase in the tax base (e.g., income). The
Social Security (FICA) tax is regressive because a fixed rate of tax for both the employer and employee is
levied up to a ceiling of $110,000 for 2012.
**sales tax, which is levied by many states, is also regressive when measured against the income base.
corporations - Answers federal corporate income tax reflects a stair-step pattern of progression that
tends to benefit small corporations.
marginal tax rate - Answers the tax rate applied to an incremental amount of taxable income that is
added to the tax base. (tax rate based on applicable tax base.... e.g., taxable income of
$100,000.....marginal tax rate is 28%)
average tax rate - Answers computed by dividing the total tax liability by the amount of taxable income.
effective tax rate - Answers total tax liability divided by total economic income.
total economic income - Answers includes all types of economic income that a taxpayer has for the year.
corporate income tax (franchise tax) - Answers franchise taxes usually are based on a weighted-average
formula consisting of net worth, income, and sales.
wealth transfer taxes - Answers imposes a single tax on transfers of property taking place during an
individual's lifetime (gifts) and at death (estates).
, gift tax - Answers is an excise tax that is imposed on the donor for transfers of property that are
considered to be a taxable gift. $13,000 annual exclusion is allowed per donee. In addition, an unlimited
marital deduction is allowed for transfers between spouses.
*** charitable contributions are effectively exempted from the gift tax because an unlimited deduction
is allowed.
federal estate tax - Answers part of the unified transfer tax system that is based on the total property
transfers an individual makes both during his or her lifetime and at death.
property taxes - Answers based on the value of a taxpayer's property, which may include both real
estate and personal property. Real estate taxes are a major source of revenue for local governments.
federal excise taxes and customs duties - Answers federal excise taxes are imposed on alcohol, tobacco,
gasoline, telephone usage, production of oil and gas.
sales tax - Answers imposed on retail sales of tangible personal property.
employment taxes - Answers social security (FICA) and federal and state unemployment compensation
taxes.
individual taxes - Answers federal income tax---progressive--
state income tax---progressive
federal gift tax---progressive
federal estate tax--- progressive
corporation taxes - Answers **federal corporate income tax--progressive
**state corporate income tax--proportional or progressive
state franchise tax--proportional
other types of taxes - Answers property taxes--proportional
excise taxes--proportional-- alcohol, telephone
sales tax--proportional--
FICA and self-employment taxes-- regressive
unemployment taxes-- regressive
taxpaying entities - Answers individuals
C corporations
