Federal Taxation Exam Questions with 100% Correct Answers (Latest 2023)

Incremental basis Correct Answer 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 Correct Answer *individual income taxes--largest *Social Security (FICA) taxes and corporate income taxes are two other major revenue sources. Tax base Correct Answer amount to which the tax rate is applied to determine tax due. I.e. (taxable income) Tax rate Correct Answer percentage rate applied to the tax base. Progressive tax rate Correct Answer where the rate of tax increases as the tax base increases. I.e. Federal income tax. Proportional tax rate (flat rate) Correct Answer 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 Correct Answer 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 Correct Answer federal corporate income tax reflects a stair-step pattern of progression that tends to benefit small corporations. Marginal tax rate Correct Answer 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 Correct Answer computed by dividing the total tax liability by the amount of taxable income.