Federal Taxation - Exam 1 UPDATED
ACTUAL Exam Questions and CORRECT
Answers
What is a tax? - CORRECT ANSWER - A required payment assessed or imposed by a
government unrelated to any benefit or service you received in return for the payment
What are some examples of taxes? - CORRECT ANSWER - Social security, medicare,
income taxes,
A charge added to hotel room rental fee to pay for city projects where the hotel is located
A charge added to car rental fee to pay for road improvements in the city where the car was
rented
Payments charged by a city to employees working in said city for city improvements & expenses
regardless of whether the employee lives in that city
What are some examples that are not taxes? - CORRECT ANSWER - DL, License plates,
tolls, speeding ticket, fees paid to have a house appraised
Taxes are calculated by what calculation - CORRECT ANSWER - Tax base x Tax rate
Income taxes
Which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - Levied by all levels of government
Imposed on individuals, corporations, estates, and trusts (sometimes nonprofits don't pay, and
sole proprietorships, partnerships and LLCs don't pay (pass through entity)
Tax Base based on income,
Collected and paid to government once a year in April
Excise Tax
,which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - (sin or luxury tax)
Levied by ALL levels of government
Consumer pays it, seller collects it
Tax Base based on quantity purchased
Levied at purchase
Reason: try to influence behavior (limit use of bad products and luxury)
Sales Tax
which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - STATE and LOCAL only
Paid by the end consumer
Levied at purchase
Each state/locality has a different tax base for sales tax
Use Tax
which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - STATE and LOCAL only
Paid by consumer to states when sales tax not paid
Imposed on the same tax base as the sales when the consumer has not paid sales tax
If they have a sales tax, they have use tax too
Levied at purchase
Paid by the end consumer
Transfer Tax
which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - All levied by FMV of property
, Estate Tax - tax imposed on the transferor of property at death
Inheritance Tax - tax imposed on the recipient of property received due to the death of the owner
Note: Ohio no longer has an estate tax (nor does the state have an inheritance or gift tax)
Pennsylvania has an inheritance tax (not estate or gift)
Property Tax
which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - State and local
paid 2 times a year
based on FMV (aka ad valorem tax)
Gift Tax - CORRECT ANSWER - 100% federal tax
Levied on the right to transfer property during the owner's lifetime
Voluntary transfer
Annual exclusion for 2023- $17,000 per donee
Very wealthy pay this
Estate Tax - CORRECT ANSWER - Federal government assesses and some states
Tax imposed on the transferor of property at death Generally based upon the fair market value on
date of death
Current exclusion in 2023 is $12,920,000
Inheritance Tax - CORRECT ANSWER - State tax (not all have it)-PA does
tax imposed on the recipient of property received due to the death of the owner
Employment tax
ACTUAL Exam Questions and CORRECT
Answers
What is a tax? - CORRECT ANSWER - A required payment assessed or imposed by a
government unrelated to any benefit or service you received in return for the payment
What are some examples of taxes? - CORRECT ANSWER - Social security, medicare,
income taxes,
A charge added to hotel room rental fee to pay for city projects where the hotel is located
A charge added to car rental fee to pay for road improvements in the city where the car was
rented
Payments charged by a city to employees working in said city for city improvements & expenses
regardless of whether the employee lives in that city
What are some examples that are not taxes? - CORRECT ANSWER - DL, License plates,
tolls, speeding ticket, fees paid to have a house appraised
Taxes are calculated by what calculation - CORRECT ANSWER - Tax base x Tax rate
Income taxes
Which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - Levied by all levels of government
Imposed on individuals, corporations, estates, and trusts (sometimes nonprofits don't pay, and
sole proprietorships, partnerships and LLCs don't pay (pass through entity)
Tax Base based on income,
Collected and paid to government once a year in April
Excise Tax
,which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - (sin or luxury tax)
Levied by ALL levels of government
Consumer pays it, seller collects it
Tax Base based on quantity purchased
Levied at purchase
Reason: try to influence behavior (limit use of bad products and luxury)
Sales Tax
which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - STATE and LOCAL only
Paid by the end consumer
Levied at purchase
Each state/locality has a different tax base for sales tax
Use Tax
which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - STATE and LOCAL only
Paid by consumer to states when sales tax not paid
Imposed on the same tax base as the sales when the consumer has not paid sales tax
If they have a sales tax, they have use tax too
Levied at purchase
Paid by the end consumer
Transfer Tax
which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - All levied by FMV of property
, Estate Tax - tax imposed on the transferor of property at death
Inheritance Tax - tax imposed on the recipient of property received due to the death of the owner
Note: Ohio no longer has an estate tax (nor does the state have an inheritance or gift tax)
Pennsylvania has an inheritance tax (not estate or gift)
Property Tax
which levels of government assess each tax, who pays the tax, what is the tax base, how/when is
the tax collected and paid to the government, is there a reason for the tax other than to create
government revenue? - CORRECT ANSWER - State and local
paid 2 times a year
based on FMV (aka ad valorem tax)
Gift Tax - CORRECT ANSWER - 100% federal tax
Levied on the right to transfer property during the owner's lifetime
Voluntary transfer
Annual exclusion for 2023- $17,000 per donee
Very wealthy pay this
Estate Tax - CORRECT ANSWER - Federal government assesses and some states
Tax imposed on the transferor of property at death Generally based upon the fair market value on
date of death
Current exclusion in 2023 is $12,920,000
Inheritance Tax - CORRECT ANSWER - State tax (not all have it)-PA does
tax imposed on the recipient of property received due to the death of the owner
Employment tax
