Chapter 1 - An Overview of Federal Taxation
UPDATED Exam Questions and
CORRECT Answers
Tax - CORRECT ANSWER - enforced, involuntary contribution required and determined by
law to provide revenue for public & government purposes with no specific benefits or services
received
purpose of a tax - CORRECT ANSWER - revenue
social changes
economic changes
equity
not a penalty
Adam Smith's 4 requirements of a good tax system - CORRECT ANSWER - equality
certainty
convenience
economy
equality - CORRECT ANSWER - tax should be based on the taxpayer's ability to pay
therefore it should be proportional to level of income
2 considerations of the equality concept - CORRECT ANSWER - horizontal equity & vertical
equity
horizontal equity - CORRECT ANSWER - 2 similarly situated taxpayers are taxed the same
vertical equity - CORRECT ANSWER - taxpayers with different situations are taxed
differently but fairly in relation to each payer's ability to pay the tax
, certainty - CORRECT ANSWER - to know when and how much tax is to be able and to be
able to determine the amount of tax to be paid
convenience - CORRECT ANSWER - tax is to be paid when it is most likely the taxpayer will
have the ability - as they receive income
pay as you go concept - CORRECT ANSWER - taxes are paid as close to the time the income
is earned as is reasonable
economy - CORRECT ANSWER - tax should have minimum compliance & administrative
cost so that the amount that goes to the US Treasury is as large as possible
3 types of tax rate structures - CORRECT ANSWER - proportional
regressive
progressive (US tax system)
tax formula - CORRECT ANSWER - tax base X tax rate
tax base - CORRECT ANSWER - the value subject to tax
example: 1) dollar amount of a purchase 2) dollars of an employee's wages 3) assessed value of
property
tax base for federal income is called - CORRECT ANSWER - taxable income
3 different types of tax rates - CORRECT ANSWER - marginal
average
effective
UPDATED Exam Questions and
CORRECT Answers
Tax - CORRECT ANSWER - enforced, involuntary contribution required and determined by
law to provide revenue for public & government purposes with no specific benefits or services
received
purpose of a tax - CORRECT ANSWER - revenue
social changes
economic changes
equity
not a penalty
Adam Smith's 4 requirements of a good tax system - CORRECT ANSWER - equality
certainty
convenience
economy
equality - CORRECT ANSWER - tax should be based on the taxpayer's ability to pay
therefore it should be proportional to level of income
2 considerations of the equality concept - CORRECT ANSWER - horizontal equity & vertical
equity
horizontal equity - CORRECT ANSWER - 2 similarly situated taxpayers are taxed the same
vertical equity - CORRECT ANSWER - taxpayers with different situations are taxed
differently but fairly in relation to each payer's ability to pay the tax
, certainty - CORRECT ANSWER - to know when and how much tax is to be able and to be
able to determine the amount of tax to be paid
convenience - CORRECT ANSWER - tax is to be paid when it is most likely the taxpayer will
have the ability - as they receive income
pay as you go concept - CORRECT ANSWER - taxes are paid as close to the time the income
is earned as is reasonable
economy - CORRECT ANSWER - tax should have minimum compliance & administrative
cost so that the amount that goes to the US Treasury is as large as possible
3 types of tax rate structures - CORRECT ANSWER - proportional
regressive
progressive (US tax system)
tax formula - CORRECT ANSWER - tax base X tax rate
tax base - CORRECT ANSWER - the value subject to tax
example: 1) dollar amount of a purchase 2) dollars of an employee's wages 3) assessed value of
property
tax base for federal income is called - CORRECT ANSWER - taxable income
3 different types of tax rates - CORRECT ANSWER - marginal
average
effective
