Advanced Tax C239 test questions with 100% correct answers.docx, Exams of Biology

Download Advanced Tax C239 test questions with 100% correct answers.docx and more Exams Biology in PDF only on Docsity! Advanced Tax C239 test questions with 100% correct answers What qualifies as a tax? - answer Is to fund the government agencies that's required, imposed by a government and not tied directly to the benefit received by the taxpayer. Earmarked tax - answer a tax that is assessed for a specific purpose Tax base - answer Is the item being taxed x the tax rate Flat tax - answer A tax in which a single tax rate is applied throughout the tax base Graduated taxes - answer taxes in which the tax base is divided into a series of monetary amounts, or brackets, where each successive bracket is taxed at a different (gradually higher or gradually lower) percentage rate. Marginal tax rate(MTR) - answer the tax rate that applies to the next additional increment of a taxpayer's income (or to deductions). What is the marginal tax rate calculation? - answer Tax (new total tax - old tax) / Taxable income (new taxable income - old taxable income) What is the average tax rate calculation? - answer Total tax / Taxable income taxpayers, the terms "self-employment tax" and "FICA tax" are synonymous. Unemployment tax - answer the tax that pays for temporary unemployment benefits for individuals terminated from their jobs without cause. Excise taxes - answer Taxes levied on the retail sale of particular products. They differ from other taxes in that the tax base for an excise tax typically depends on the quantity purchased rather than a monetary amount. Transfer taxes - answer taxes on the transfer of wealth from one taxpayer to another which is estate and gift taxes State and local taxes - answer Tax base for a sales tax of retail price of goods (state) and some services and tax imposed by local government for cities, counties, school districts (local). Property taxes - answer Are ad valorem taxes, meaning that the tax base for each property's fair market value of the property. Real property - answer Consist of taxes on land, structures, and improvements permanently attached to land. Personal property tax - answer taxes on all other types of property, both tangible and intangible. Sales tax - answer A tax imposed of the retail price of goods, retailers are responsible for collecting and remitting the tax. Use tax - answer A tax imposed on the retail price of goods owned, possessed, or consumed within a state that were not purchased within the state. Explicit taxes - answer taxes directly imposed by a government. Implicit taxes - answer indirect taxes that result from a tax advantage the government grants to certain transactions to satisfy social, economic, or other objectives. They are defined as the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status. Sufficiency - answer a standard for evaluating a good tax system, as assessing the aggregate size of the tax revenues that must be generated and ensuring that the tax system provides these revenues. Static forecasting - answer Forecasting tax revenues based on the existing state of transactions while ignoring how taxpayers may alter their activities in response to a tax law change. Dynamic for - answer Forecasting tax revenues that incorporates into the forecast how taxpayers may alter their activities in response to a tax law change follow the court's adverse ruling in the future, the IRS will no longer litigate Tax Research - answer 1. Understand the facts 2. Identify issues 3. Locate relevant authorities 4. Analyze the tax authorities, and 5. Document and communicate research results Statement on Standards for Tax Services (SSTS) - answer There are 7 SSTS. 1) recommending a tax return position, 2) answering questions on a tax return, 3) preparing a tax return, 4) using data supplied by a client, 5) taking a tax return position inconsistent with a previous year's tax return, 6) discovering a tax return error, and 7) giving tax advice to taxpayers Circular 230 - answer Issued by the IRS, provides regulations governing tax practice and applies to all persons practicing before the IRS. Tax Planning - answer 1. Timing (deferring or accelerating taxable income and tax deductions 2. Income shifting (shifting income from high to low tax rate taxpayers) 3. Conversion (converting income from high to low tax rate activities) Present value - answer the amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money After-tax rate of return - answer a taxpayer's before-tax rate of return on an investment minus the taxes paid on the income from the investment After-tax rate of return calculation - answer Future Value = Present Value x (1 + r) n = $1 x (1 + .02) 1 = $1.05 A deferral strategy may not be optimal if - answer 1) taxpayer has severe cash flow needs, 2) continuing the investment would generate a low rate of return compared to other investments, or 3) the current investment would subject the taxpayer to unnecessary risk. Constructive receipt doctrine - answer taxpayer must recognize income when it is actually or constructively received Assignment of income doctrine - answer the judicial doctrine holding that earned income is taxed to the taxpayer providing the service, and that income from property is taxed to the individual who owns the property when the income accrues. Related-party transaction - answer financial activities among family members, among owners and their businesses, or among businesses owned by the same owners. Economic substance doctrine - answer judicially based doctrine that requires transactions to meaningfully change a taxpayer's economic position and have a substantial purpose in order for a taxpayer to obtain tax benefits tax advoidance - answer the legal act of arranging one's transactions or affairs to reduce taxes paid. tax evasion - answer willful failure to pay taxes Earned income - answer compensation and other forms of income received for providing goods or services in the ordinary course of business Unearned income - answer income from property that accrues as time passes without effort on the part of the owner of the property Annuity - answer An investment that pays a stream of equal payments over time. What are the two basic types of annuities? - answer 1) Annuities paid over a fix period, and 2) annuities paid over a person's life (for as long as the person lives) What is Annuity exclusion ratio? - answer Original investment / Expected value of annuity = Return of capital % Formula for Calculating Gain (Loss) from Sale of an Asset - answer Sales proceeds Less: Selling expenses =Amount realized Less: Tax basis (investment) in property sold = Gain (loss) on sale Flow-through entity - answer legal entities like partnerships, limited liability companies, and S corporations that do not pay income tax. Income and losses from flow-through entities are allocated to their owners. Alimony - answer Support payment of cash made to a former spouse. Imputed income - answer income from an economic benefit the taxpayer receives indirectly rather than directly. The amount of the income is based on comparable alternatives. Qualified business income (QBI) - answer Net business income from a qualified trade or business conducted in the US. This is the tax base deduction for qualified business income. Net earnings from self-employment - answer the amount of earnings subject to self- employment income taxes. The amount is 92.35% of a taxpayer's self-employment income. Institutional shareholders - answer entities, such as investment companies, mutual funds, brokerages, insurance companies, pension funds, investment banks, and endowment What are common separated stated items? - answer - interest income - guaranteed payments - net earnings (loss) from self-employment - tax-exempt income - net rental real estate income - royalties - 179 deduction Guaranteed payments - answer payments made to partner or LLC members that are guaranteed because they are not contingent on partnership profits or losses. They are economically similar to shareholders salary payments. Self-employment taxes - answer Social Security and Medicare taxes paid by the self- employed on a taxpayer's net earnings from self-employment. For self-employed taxpayers, the terms "self-employment tax" and "FICA tax" are synonymous. Special allocations - answer allocations of income, gain, expenses, loss, etc. that are allocated to the owners of a entity in a manner out of proportional with the owners' interests in the entity. Special allocations can be made by entities treated as partnerships for federal income tax purposes. Form 1065 - answer the form partnerships file annually with the IRS to report partnership ordinary (loss) and separately stated items for the year. Form 7004 - answer the form C corporations, partnerships, and S corporations file to receive an automatic extension to file their annual tax return. Schedule K - answer a schedule filed with a partnership's annual tax return listing its ordinary income (loss) and its separately stated items.