Chapter 1 Taxation of Individuals and Business Entities

Chapter 1 Taxation of Individuals and
Business Entities




What is the purpose of taxes? - answersraise revenue to fund government operations
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other goals: encourage certain behavior (charitable contributions) & discourage undesirable lega
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l behavior (sin taxes)
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What qualifies as a tax? - rh rh rh rh rh




answerstax is a payment required by a government that is unrelated to any specific benefit or servi
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ce received from the government
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key components: payment required, payment imposed by government agency (federal, state, loc
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al), payment not tired directly to benefits received by the tax payer
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How do you calculate tax? - answersmust know: tax base and tax rate
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tax= tax base* tax rate rh rh rh rh




What are the three ways to measure tax rates? - answers-marginal tax rate
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-average tax rate rh rh




-effective tax rate rh rh




What is marginal tax rate? - rh rh rh rh rh




answersthe tax rate that applies to the next additional increment of a taxpayer's taxable income
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(change in tax/ change in taxable income) rh rh rh rh rh rh




What is average tax rate? - rh rh rh rh rh




answersthe taxpayer's average level of taxation on each dollar of taxable income
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(total tax/ taxable income) rh rh rh

, Chapter 1 Taxation of Individuals and
Business Entities
What is effective tax rate? -
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answersthe taxpayer's average rate of taxation on each dollar of total income (both taxable and n
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on-taxable)



Which tax rate is most helpful for tax planning? - answersmarginal tax rate
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Which tax rate tells you more about a person's tax burden? - answerseffective tax rate
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What are the three tax rate structures? - answersproportional tax rate (flat tax)
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progressive tax rate rh rh




regressive tax rate rh rh




What is proportional tax rate (flat tax)? -
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answersimposes a constant tax rate throughout the tax base (sales tax)
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What is progressive rate? -
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answersimposes an increasing marginal tax rate as the tax base increases
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What is regressive tax rate? -
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answersimposes a decreasing marginal tax rate as the tax base increases (social security tax bc wa
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ges & salaries are taxable income)
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What are the three types on taxes? - answersfederal taxes
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state and local taxes
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implicit taxes rh




What are federal taxes? - answersincome taxes
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employment and unemployment taxes rh rh rh