OMSA 2024: Practice Final|29 QUESTIONS| WITH COMPLETE SOLUTIONS, Exams of Nursing

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What is the purpose of taxes? - Correct answer raise revenue to fund government

operations other goals: encourage certain behavior (charitable contributions) & discourage undesirable legal behavior (sin taxes)

What qualifies as a tax? - Correct answer tax is a payment required by a government

that is unrelated to any specific benefit or service received from the government key components: payment required, payment imposed by government agency (federal, state, local), payment not tired directly to benefits received by the tax payer

How do you calculate tax? - Correct answer must know: tax base and tax rate

tax= tax base* tax rate

What are the three ways to measure tax rates? - Correct answer -marginal tax rate

-average tax rate -effective tax rate

What is marginal tax rate? - Correct answer the tax rate that applies to the next

additional increment of a taxpayer's taxable income (change in tax/ change in taxable income)

What is average tax rate? - Correct answer the taxpayer's average level of taxation

on each dollar of taxable income (total tax/ taxable income)

What is effective tax rate? - Correct answer the taxpayer's average rate of taxation

on each dollar of total income (both taxable and non-taxable)

Which tax rate is most helpful for tax planning? - Correct answer marginal tax rate

Which tax rate tells you more about a person's tax burden? - Correct

answer effective tax rate

What are the three tax rate structures? - Correct answer proportional tax rate (flat

tax) progressive tax rate regressive tax rate

What is proportional tax rate (flat tax)? - Correct answer imposes a constant tax rate

throughout the tax base (sales tax)

What is progressive rate? - Correct answer imposes an increasing marginal tax rate

as the tax base increases

What is regressive tax rate? - Correct answer imposes a decreasing marginal tax

rate as the tax base increases (social security tax bc wages & salaries are taxable income)

What are the three types on taxes? - Correct answer federal taxes

state and local taxes implicit taxes

What are federal taxes? - Correct answer income taxes

employment and unemployment taxes excise taxes transfer taxes (estate tax and gift tax)

What are state and local taxes? - Correct answer sales and use taxes

income taxes property taxes excise taxes

Does federal or state & local tax receive more in tax revenue? - Correct

answer federal

Who pays more in income in income tax, individuals or corporations? - Correct

answer individuals

What are income taxes? - Correct answer federal taxes that represent over half of all

tax revenues collected in the United States (most from individuals) levied on individuals, corporations, estates & trusts

What are employment and unemployment taxes? - Correct answer federal taxes;

second largest group of taxes employment taxes include OASDI (ss tax) and MHI tax (Medicare tax) unemployment taxes refund temporary unemployment benefits for individuals terminated from their jobs without cause

What are excise taxes? - Correct answer federal taxes; third largest group of taxes

levied on the quantity of products sold ex: gasoline, diesel fuel, telephone use, air transportation, alcohol (sin tax), cigarettes (sin)

What are estate and gift taxes (transfer taxes)? - Correct answer levied on the fair

market values of wealth transfers upon death or by gift

What are state and local taxes? - Correct answer sales and use taxes

property taxes

What are sales and use taxes? - Correct answer -tax base for a sales tax is the retail

sales of goods and some services -tax base for the use tax is the retail price of goods owned, possessed or consumed within a state that were not purchased within the state

What are property taxes? - Correct answer -tax base is the fair market value of the

property -real property taxes consists of taxes on land and structures permanently attached to land (buildings) -personal property taxes includes taxes on all other types of property, both tangible and intangible (vehicles, boats)

Which property taxes are easier to administer? - Correct answer real property

On the drive home from Athens, Georgia, Margaret stops and gasup-n-go. On each gasoline she buys, Margaret pays 18.4 cents of federal excise and 7.5 cents of state excise tax (plus 4% sales tax). Could Margaret have avoided paying excise tax had she

stopped in Florida instead? - Correct answer no federal & state may have similar tax

rates Marg buys three new land's end shirts online for her dad for $100. Because Lands' End does not have a business presence in Florida, it does not collect Florida sales tax on

the $100 purchase. Does Marg's purchase escape Florida taxation? - Correct

answer she still has to pay use tax

What are implicit taxes? - Correct answer - indirect taxes that result from a tax

advantage the government grants to certain transactions

• defined as the reduced before-tax return that a tax-favored asset produces because of its tax advantaged status
• difficult to quantify but important to understand in evaluating the relative tax burdens of tax-advantaged investments

What are municipal bonds? - Correct answer implicit taxes

• tax-favored assets, bc interest income is tax exempt (0% tax rate)
• typically pay a lower interest rate than corporate bonds with similar risk bc of the tax benefits

What are the five factors to evaluate different tax systems? - Correct answer -

sufficiency

• equity
• certainty
• convenience
• economy

What is sufficiency when evaluating different tax systems? - Correct answer involves

assessing the aggregate size of the tax revenues that must be generated and making sure that the tax system provides these revenues

What is equity when evaluating different tax systems? - Correct answer how the tax

burden should be distributed across the taxpayers

What is certainty when evaluating different tax systems? - Correct answer taxpayers

should be able to determine when to pay the tax, where to pay the tax, and how to determine the tax

What is convenience when evaluating different tax systems? - Correct answer tax

system should be designed to facilitate the collection of tax revenues without indue hardship to the taxpayer

What is economy when evaluating different tax systems? - Correct answer should

minimize the compliance and administration costs associated with the tax system

What are the sufficiency types of forecasting? - Correct answer -static: forecasting

revenue ignores how taxpayers might alter their activities in response to a tax law change and instead bases projected tax revenues on the existing state of transactions -dynamic: forecasting that tries to predict possible responses by taxpayers to new tax *income effect: as tax rates go up, people will work harder to maintain same after-tax income *substitution effect: as tax rates go up, people will substitute non-taxable activities bc the marginal value of taxable ones has decreased

What are the two types of equity? - Correct answer - horizontal equity: two taxpayers

in similar situations pay the same tax

• vertical equity: taxpayers with greater ability to pay tax, pay more tax relative to taxpayers with a lesser ability to pay tax Employers often withhold federal income taxes directly from worker's paychecks. This is

an example of which principle in practice? - Correct answer convenience