Federal Income Tax Exam 1(100%
Correct!
What are the two important features of the tax environment? - ANSWERS1. pervasive-
so widespread, come in so many varieties, and affect virtually every aspect of modern
life
2. dynamic - tax laws change so frequently
tax - ANSWERSa payment to support the cost of government. A tax is non penal but
compulsory and is not directly related to any specific benefit provided by the
government.
taxpayer - ANSWERSany person or organization required by law to pay a tax to a
governmental authority (in US person is defined as individuals and corporations)
incidence - ANSWERSthe ultimate economic burden represented by a tax (incidence
can be shifted to a 3rd party)
jurisdiction - ANSWERSthe right of a government to levy tax on a specific person or
organization
Who does the federal government have jurisdiction over to tax? - ANSWERSany
individual that is a US citizen, permanently resides in the US, or a non US citizen or
resident but earns income from a source in the US
tax base - ANSWERSan item, occurrence, transaction, or activity with respect to which
a tax is levied. Tax bases are usually expressed in monetary terms.
dollar amount of a tax formula - ANSWERSTax (T) = Rate (r) x Base (B)
flat rate - ANSWERSa single percentage that applies to the entire tax base
graduated rates - ANSWERSMultiple percentages that apply to specified brackets of the
tax base.
brackets - ANSWERSThe portion of a tax base subject to a given percentage rate in a
graduated rate structure.
revenue - ANSWERStotal tax collected by the government and available for public use
event or transaction based tax - ANSWERSa tax imposed on the occurrence of a
certain event or transaction
EX: sales tax on the purchase of retail goods and services or estate tax
, activity based tax - ANSWERSA tax imposed on the results of an ongoing activity in
which persons or organizations engage. Taxpayers must maintain records of the activity
and report and pay taxes
EX: annual income tax
income tax - ANSWERSa tax imposed on the periodic increases in wealth resulting from
a person's economic activities
earmarked tax - ANSWERSa tax that generates revenues for a designated project or
program rather than for the government's general fund
EX: revenue from the federal payroll and self-employment taxes fund Social Security
and Medicare
What taxes do local governments depend heavily on? - ANSWERSReal Property Taxes
and Personal Property Taxes. These taxes account for more than 70% of local
government tax revenues.
ad valorem tax - ANSWERSTax based on the value of the property
EX: real property taxes and personal property taxes
Realty (or real property) - ANSWERSland and whatever is erected or growing on the
land or permanently affixed to it (includes mineral deposits)
real property tax - ANSWERS- A tax levied on the ownership of realty and based on the
property's assessed market value.
- allowed in all 50 states
- tax rate is determined annually based on the jurisdiction's need for revenue
- may establish different tax rates for different classifications of property (commercial
realty vs residential realty)
tax assessors - ANSWERSAn elected or appointed government official responsible for
deriving the value of realty located within a taxing jurisdiction.
abatements - ANSWERSA property tax exemption granted by a government for a
limited period of time. These are used to lure commercial enterprises into their
jurisdiction to create jobs and boost the local economy
personalty - ANSWERS- any asset that is not realty
- taxes are based on the value of the asset (individuals determine value and report it)
What are the 3 general classes of taxable personalty? - ANSWERS1. household
tangibles - automobiles/ recreational vehicles, pleasure boats, and private airplanes
2. business tangibles - inventory, furniture and fixtures, machinery, and equipment
3. intangibles - stocks and bonds (marketable securities)
Correct!
What are the two important features of the tax environment? - ANSWERS1. pervasive-
so widespread, come in so many varieties, and affect virtually every aspect of modern
life
2. dynamic - tax laws change so frequently
tax - ANSWERSa payment to support the cost of government. A tax is non penal but
compulsory and is not directly related to any specific benefit provided by the
government.
taxpayer - ANSWERSany person or organization required by law to pay a tax to a
governmental authority (in US person is defined as individuals and corporations)
incidence - ANSWERSthe ultimate economic burden represented by a tax (incidence
can be shifted to a 3rd party)
jurisdiction - ANSWERSthe right of a government to levy tax on a specific person or
organization
Who does the federal government have jurisdiction over to tax? - ANSWERSany
individual that is a US citizen, permanently resides in the US, or a non US citizen or
resident but earns income from a source in the US
tax base - ANSWERSan item, occurrence, transaction, or activity with respect to which
a tax is levied. Tax bases are usually expressed in monetary terms.
dollar amount of a tax formula - ANSWERSTax (T) = Rate (r) x Base (B)
flat rate - ANSWERSa single percentage that applies to the entire tax base
graduated rates - ANSWERSMultiple percentages that apply to specified brackets of the
tax base.
brackets - ANSWERSThe portion of a tax base subject to a given percentage rate in a
graduated rate structure.
revenue - ANSWERStotal tax collected by the government and available for public use
event or transaction based tax - ANSWERSa tax imposed on the occurrence of a
certain event or transaction
EX: sales tax on the purchase of retail goods and services or estate tax
, activity based tax - ANSWERSA tax imposed on the results of an ongoing activity in
which persons or organizations engage. Taxpayers must maintain records of the activity
and report and pay taxes
EX: annual income tax
income tax - ANSWERSa tax imposed on the periodic increases in wealth resulting from
a person's economic activities
earmarked tax - ANSWERSa tax that generates revenues for a designated project or
program rather than for the government's general fund
EX: revenue from the federal payroll and self-employment taxes fund Social Security
and Medicare
What taxes do local governments depend heavily on? - ANSWERSReal Property Taxes
and Personal Property Taxes. These taxes account for more than 70% of local
government tax revenues.
ad valorem tax - ANSWERSTax based on the value of the property
EX: real property taxes and personal property taxes
Realty (or real property) - ANSWERSland and whatever is erected or growing on the
land or permanently affixed to it (includes mineral deposits)
real property tax - ANSWERS- A tax levied on the ownership of realty and based on the
property's assessed market value.
- allowed in all 50 states
- tax rate is determined annually based on the jurisdiction's need for revenue
- may establish different tax rates for different classifications of property (commercial
realty vs residential realty)
tax assessors - ANSWERSAn elected or appointed government official responsible for
deriving the value of realty located within a taxing jurisdiction.
abatements - ANSWERSA property tax exemption granted by a government for a
limited period of time. These are used to lure commercial enterprises into their
jurisdiction to create jobs and boost the local economy
personalty - ANSWERS- any asset that is not realty
- taxes are based on the value of the asset (individuals determine value and report it)
What are the 3 general classes of taxable personalty? - ANSWERS1. household
tangibles - automobiles/ recreational vehicles, pleasure boats, and private airplanes
2. business tangibles - inventory, furniture and fixtures, machinery, and equipment
3. intangibles - stocks and bonds (marketable securities)
