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Exam 1: An Introduction to Tax

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Question 41

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A taxpayer's average tax rate is the most appropriate tax rate to use in tax planning.

A) True
B) False

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Question 42

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The tax base for the federal income tax is taxable income.

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B) False

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Question 43

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The income and substitution effects are two opposing effects that one could consider in static forecasting.

One benefit of a sin tax (e.g., a tax on cigarettes)is that it should increase the demand for the products being taxed.

Self-employment taxes are charged on self-employment income in addition to any federal income tax.

Congress would like to increase tax revenues by 20 percent. Assume that the average taxpayer in the United States earns $80,000 and pays an average tax rate of 17.5 percent. If the income effect is larger than the substitution effect, what average tax rate will result in a 20 percent increase in tax revenues? This is an example of what type of forecasting?

Margaret was issued a $150 speeding ticket. This is:

Taxes influence many types of business decisions but generally do not influence personal decisions.

Common examples of sin taxes include the taxes imposed on airline tickets and gasoline.

Ariel invests $50,000 in a city of Las Vegas bond that pays 5 percent interest. Alternatively, Ariel could have invested the $50,000 in a bond recently issued by Jittery Joe's, Inc. that pays 8 percent interest with similar non-tax characteristics as the city of Las Vegas bond (e.g., similar risk). Assume that Ariel's marginal tax rate is 24 percent. What is her after-tax rate of return for the city of Las Vegas bond? For the Jittery Joe's, Inc. bond? How much explicit tax does Ariel pay on the city of Las Vegas bond? How much implicit tax does she pay on the city of Las Vegas bond? How much explicit tax would she have paid on the Jittery Joe's, Inc. bond? Which bond should she choose?

To calculate a tax, you need to know: I. the tax base II) the taxing agency III) the tax rate IV) the purpose of the tax

Taxes influence which of the following decisions?

Taxes influence business decisions such as where a business should locate or how a business should be structured.

The difficulty in calculating a tax is typically in the determination of:

Heather, a single taxpayer who files as a head of household, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Oxford bonds. Using the U.S. tax rate schedule for year 2019, how much federal tax will she owe? What is her average tax rate? What is her effective tax rate? What is her current marginal tax rate? If Heather has an additional $20,000 of tax deductions, what is her marginal tax rate on these deductions? (Round the tax rates to two decimal places, e.g., .12345 as 12.35 percent.)(Use tax rate schedule).

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo and his wife file married filing jointly in 2019, what would be their average tax rate (rounded) ? (Use tax rate schedule.)

Nelson has the choice between investing in a city of Fruithurst bond at 4 percent or a J.B. Ribs, Inc. bond at 6.5 percent. Assuming that both bonds have the same nontax characteristics and that Nelson has a 40 percent marginal tax rate, in which bond should he invest? What interest rate offered by J.B. Ribs, Inc. would make Nelson indifferent between investing in the two bonds?

Which of the following is true regarding real property taxes and personal property taxes?

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo and his wife file married filing jointly in 2019, What is Leonardo and Theresa's effective tax rate for 2019 (rounded) ? (Use tax rate schedule.)

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham bonds. Using the U.S. tax rate schedule for year 2019, what is his effective tax rate (rounded) ? (Round your final answer to the nearest whole percent.) (Use tax rate schedule.)