The governor of your state stated in a recent political speech that he has never supported any income tax increases as the tax rates have remained at the same level during his entire term of office. Yet, you believe that you are paying more tax this year than in previous years even though your income has not increased. How can both you and the governor be correct? In other words, is it possible for the government to raise taxes without raising tax rates?
Carmen has computed that her average tax rate is 16% and her marginal tax rate is 25% for the current year. She is considering whether to make a charitable contribution to her church before the end of the tax year. Which tax rate is of greater significance in measuring the tax effect for her decision? Explain.
Indicate which of the following taxes are generally progressive, proportional, or regressive:
The three different levels of government (federal, state, and local) must impose taxes to carry out their functions. For each of the types of taxes below, discuss which level of government primarily uses that type of tax.
a. Property taxes
b. Excise taxes
c. Sales taxes
d. Income taxes
e. Employment taxes
A "good" tax structure has five characteristics.
a.
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Briefly discuss the five characteristics.
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b.
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Using the five characteristics, evaluate the following tax structures:
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1. Federal income tax
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2. State sales tax
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3. Local ad valorem property tax
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a. Briefly discuss the five characteristics.
For each characteristic, choose the corresponding letter that matches its description.
b1. Using the five characteristics, evaluate the federal income tax.
Select which characteristic(s) the federal income tax meets the criteria of fairly well and which characteristic(s) the federal income tax does not meet. (If a box is not used in the table leave the box empty.)
b2. Using the five characteristics, evaluate the state sales tax.
Select which characteristic(s) the state sales tax meets the criteria of fairly well and which characteristic(s) the state sales tax does not meet. (If a box is not used in the table leave the box empty.)
b3. Using the five characteristics, evaluate the local ad valorem property tax.
Select which characteristic(s) the local ad valorem property tax meets the criteria of fairly well and which characteristic(s) the local ad valorem property tax does not meet. (If a box is not used in the table leave the box empty.)
Two commonly-recognized measures of the fairness of an income tax structure are "horizontal equity" and "vertical equity".
a.
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Discuss what is meant by horizontal equity and vertical equity as it pertains to the income tax.
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b.
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Why is it so difficult to design a "fair" tax structure?
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What is meant by the term "double taxation" of corporations?
Choose an example of double taxation using a corporation and shareholder.
What types of taxpayers are more likely to be audited by the IRS?
Select the types of taxpayers are more likely to be audited by the IRS. (Complete all answer boxes.)
If a taxpayer files his or her tax return and receives a tax refund from the IRS, does this mean that the IRS feels that the return is correct and will not be subject to a future audit?
What is the statute of limitations for transactions involving:
a. Fraud (e.g., failure to file a tax return)
b. Disallowance of tax deduction items
c. The omission of rental income that is equal to greater than 25% of the taxpayer's reported gross income
Many tax professionals have moved into the field of financial planning for their clients.
a. How do taxes impact financial planning for a client?
b. Why do tax professionals have a perfect opportunity to perform financial planning for their clients?
Julie and Gus are married and file a joint return. They expect to have $230,000 of taxable income in the next year and are considering whether to purchase a personal residence that would provide additional tax deductions of $69,000 for mortgage interest and real estate taxes.
(Here is the 2016 tax rate schedule for the Married filing jointly filing status.)
(The following are the scenarios.)
Which of the following individuals is most likely to be audited?
The primary objective of the federal income tax law is to raise revenue. What are its secondary objectives?
Distinguish between taxpaying entities and flow-through entities from the standpoint of the federal income tax law.
Is the principal goal of tax planning to absolutely minimize the amount of taxes that a taxpayer must pay?
Explain how a computer can assist a tax practitioner in tax planning activities and making complex tax calculations.
Sarah and Tim are married, have four dependent children, and file a joint return in 2016. If they have adjusted gross income (AGI) of $80,000 and itemized deductions of $8,500, what is their taxable income for 2016?
Requirements
a.
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What is their marginal tax rate for purposes of making this decision?
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b.
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What is the tax savings if the residence is acquired?
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(The following are the scenarios.)
Which of the following individuals is most likely to be audited?
The primary objective of the federal income tax law is to raise revenue. What are its secondary objectives?
Distinguish between taxpaying entities and flow-through entities from the standpoint of the federal income tax law.
Is the principal goal of tax planning to absolutely minimize the amount of taxes that a taxpayer must pay?
Explain how a computer can assist a tax practitioner in tax planning activities and making complex tax calculations.
Sarah and Tim are married, have four dependent children, and file a joint return in 2016. If they have adjusted gross income (AGI) of $80,000 and itemized deductions of $8,500, what is their taxable income for 2016?
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