ACCT 355 Exam 1 Study Guide With
complete solution 2024/25
Who cares about taxes? - 1. Businesses
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2. Politicians
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3. Individuals
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What qualifies as a tax? - A tax is a payment required by a government agency that is
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unrelated to any specific benefit or service received from the government agency
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ii Entities in Federal Income Tax System - Govt, individuals, businesses
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Why taxes? - constitutional purpose: main way govt makes money, pays debts, provides
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for common defense, provide for general welfare
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proportional tax rate structure - also known as a flat tax, this tax rate structure imposes a
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constant tax rate throughout the tax base. As the tax base increases, the taxes paid
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increase proportionally.
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progressive tax rate structure - imposes an increasing marginal tax rate as the tax base
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increases
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regressive tax rate structure - imposes a decreasing marginal tax rate as the tax base
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
increases
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ii Gross Income - the total amount of income from wages before any payroll deductions
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adjustments for agi - "Above-the-line" IRS allowed reductions to your gross income that
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are used to calculate adjusted gross income
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Adjusted Gross Income (AGI) - the amount of income remaining after subtracting all
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allowable adjustments to income from gross income
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ii Adjustments from AGI - Below the line from AGI ii ii ii ii ii ii ii ii ii ii
taxable income - income on which tax must be paid; total income minus exemptions and
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deductions
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ii Taxable Income Formula - Taxable Income= gross income - tax deductions
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ii Tax Determination - amount of taxes owed on taxable income
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tax credits - deductions from a taxpayer's tax liability that directly reduce his or her taxes
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due (rather than reducing taxable income)
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complete solution 2024/25
Who cares about taxes? - 1. Businesses
ii ii ii ii ii ii ii ii
2. Politicians
ii
3. Individuals
ii
What qualifies as a tax? - A tax is a payment required by a government agency that is
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
unrelated to any specific benefit or service received from the government agency
ii ii ii ii ii ii ii ii ii ii ii ii
ii Entities in Federal Income Tax System - Govt, individuals, businesses
ii ii ii ii ii ii ii ii ii ii ii
Why taxes? - constitutional purpose: main way govt makes money, pays debts, provides
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
for common defense, provide for general welfare
ii ii ii ii ii ii ii
proportional tax rate structure - also known as a flat tax, this tax rate structure imposes a
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
constant tax rate throughout the tax base. As the tax base increases, the taxes paid
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
increase proportionally.
ii ii
progressive tax rate structure - imposes an increasing marginal tax rate as the tax base
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
increases
ii
regressive tax rate structure - imposes a decreasing marginal tax rate as the tax base
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
increases
ii
ii Gross Income - the total amount of income from wages before any payroll deductions
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
adjustments for agi - "Above-the-line" IRS allowed reductions to your gross income that
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
are used to calculate adjusted gross income
ii ii ii ii ii ii ii
Adjusted Gross Income (AGI) - the amount of income remaining after subtracting all
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
allowable adjustments to income from gross income
ii ii ii ii ii ii ii
ii Adjustments from AGI - Below the line from AGI ii ii ii ii ii ii ii ii ii ii
taxable income - income on which tax must be paid; total income minus exemptions and
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
deductions
ii
ii Taxable Income Formula - Taxable Income= gross income - tax deductions
ii ii ii ii ii ii ii ii ii ii ii ii
ii Tax Determination - amount of taxes owed on taxable income
ii ii ii ii ii ii ii ii ii ii ii
tax credits - deductions from a taxpayer's tax liability that directly reduce his or her taxes
ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii ii
due (rather than reducing taxable income)
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