Question 1

Which one of the following statements is true?

Accepted Answer

A)  Tax credits reduce tax liability at the marginal tax rate.
B)  Both tax credits and tax deductions are offsets to taxable income.
C)  Dollar for dollar, tax credits are more valuable than tax deductions.
D)  The tax impact of an additional dollar of tax base is determined by multiplying by the average tax rate.
E)  "I can't afford to earn more because it will throw me into a higher tax bracket and I will keep less than I do now after taxes."F) A) and E)
G) C) and E)

Question 2

Which of the following transactions is not matched with a tax planning technique that will have the effect of minimizing or deferring taxes?

Accepted Answer

A)  Parents transfer property to a trust.Income from property deposited in trust for their children who are at least 19 years of age is taxed at the children's rate, rather than at the parents' higher tax rate.
B)  Corporation X pays no dividends this year.Income is deferred to the stockholders, since they do not pay tax until they receive the dividends.
C)  J is in the 28 percent marginal tax bracket in 2012 and the 15 percent marginal tax bracket in 2013.J chooses to pay income tax on his Series EE Federal bonds annually rather than realizing all the interest income when the bonds mature in 2012.
D)  J is in the 28 percent marginal tax bracket in 2012 and the 15 percent marginal tax bracket in 2013.J chooses to deduct certain discretionary expenses in 2012 rather than in 2013.
E)  S, a heart surgeon, hires his two sons, ages 16 and 18, to clean his office four times a week.The two sons are legitimate employees and do the work they were hired to do.F) C) and D)
G) A) and B)

Question 3

As a source of revenue, the Federal corporate income tax is larger than the Federal individual income tax.

Accepted Answer

A) True 
 B)False

Question 4

The estate tax applicable credit amount effectively shields a maximum of in 2012 from estate tax

Accepted Answer

A)  $155,800
B)  $1,772,800
C)  $1,000,000
D)  $10,240,000
E)  $5,120,000F) A) and B)
G) A) and D)

Question 5

The FICA Tax rate is best considered:

Accepted Answer

A)  Proportional
B)  Progressive
C)  Regressive
D)  Neutral
E)  None of the aboveF) B) and C)
G) C) and D)

Question 6

Which one of the following concerning a decedent's gross estate is not true?

Accepted Answer

A)  The gross estate includes the value of all property owned at date of death, wherever located.
B)  Property included in the gross estate generally is valued as of the date of death.
C)  If the decedent's wife is the beneficiary, proceeds of an insurance policy on the life of the decedent are excludable from the decedent's gross estate.
D)  The marital deduction in 2012 is currently set at $5,120,000 million, allowing for a joint marital deduction of $10,240,000.
E)  Any of the unified credit not used by the first spouse to die can be used by the surviving spouse.F) A) and D)
G) B) and E)

Question 7

A source of income is taxable only when listed as a taxable source of revenue in the Internal Revenue Code.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not an excise tax?

Accepted Answer

A)  Use tax
B)  Occupational tax
C)  Retail sales or products and commodities taxes
D)  Manufacturers' taxes
E)  Windfall profit taxF) B) and D)
G) A) and C)

Question 9

The estate tax applicable credit amount is $5,120,000 million in 2012.

Accepted Answer

A) True 
 B)False

Question 10

The gift tax and the estate tax exempt the same amount from taxation in 2012.

Accepted Answer

A) True 
 B)False

Question 11

Which one of the following statements is not true concerning the estate tax applicable credit amount?

Accepted Answer

A)  The applicable estate tax credit amount can offset a tax up to $1,772,800 in 2012.
B)  The applicable estate tax credit amount is a lifetime credit.
C)  The applicable estate tax credit amount can be used to offset gift taxes and estate taxes.
D)  Use of the applicable estate tax credit amount is mandatory if one makes a taxable gift.
E)  The entire applicable estate tax credit amount can be used in more than one taxable year to offset additional tax.F) B) and E)
G) A) and E)

Question 12

The equity principle does not help explain which one of the following?

Accepted Answer

A)  Deduction of interest on a home
B)  The progressive tax structure
C)  Deduction of medical expenses
D)  The timing of a tax
E)  Deduction of casualty lossesF) A) and E)
G) B) and C)

Question 13

Which of the following is not a true statement?

Accepted Answer

A)  The current FUTA tax rate is 6.2 percent of the first $7,000 of wages paid during the year to each covered employee.
B)  Most states also impose an unemployment tax on employers.
C)  A credit is allowed against an employer's FUTA tax liability: a maximum of 5.4 percent of the first $7,000 of wages paid during the year to each covered employee.
D)  For an employee paid more than $7,000 during the year, FUTA tax paid by the employer is normally $434.
E)  All of the above are true.F) A) and D)
G) C) and E)

Question 14

Which one of the following statements does not apply to the Federal Insurance Contribution Act (FICA) ?

Accepted Answer

A)  The proceeds raised from the FICA tax are used to finance old-age, survivors, and disability insurance payments (Social Security benefits) .
B)  Amounts withheld from an individual's paycheck for social security are not subject to income tax.
C)  An employer is required to withhold both Federal income taxes and FICA taxes from each employee's wages paid during the year.
D)  FICA taxes are imposed on each dollar of an employee's wages up to a fixed amount per year.
E)  The employer is required to pay over to the Federal government both the employee's portion of FICA tax and his own portion of the FICA tax.F) A) and E)
G) A) and B)

Question 15

Congress has chosen to exclude many sources of income from taxation even though it has the authority to tax income from whatever source derived.

Accepted Answer

A) True 
 B)False

Question 16

T has a tax base of $30,000 and pays a tax of $2,500 on the first $25,000 and $750 on the next $5,000.T has a marginal tax rate of

Accepted Answer

A)  10 percent
B)  15 percent
C)  20 percent
D)  10.83 percent
E)  None of the aboveF) C) and D)
G) D) and E)

Question 17

If T is in the 35 percent tax rate bracket, then all of T's income is being taxed at 35 percent.

Accepted Answer

A) True 
 B)False

Question 18

A husband gives his wife a total of $6 million in gifts for the year ended 2012.The taxable gift resulting from this transfer for the current year are

Accepted Answer

A)  $0
B)  $5,987,000
C)  $1,000,000
D)  $6,000,000
E)  None of the aboveF) A) and C)
G) A) and E)

Question 19

Which one of the following miscellaneous types of taxes is not matched with the property or activity that is being taxed?

Accepted Answer

A)  Tangible personal property tax covers land, buildings, and residences.
B)  Intangible personal property tax covers stocks, bonds, and accounts and notes receivable.
C)  Franchise tax covers the right to operate a business in the state of New York.
D)  Sales tax covers gross receipts from the retail sale of clothing, automobiles, and equipment.
E)  Use tax covers the possession and enjoyment of clothing, automobiles, and equipment.F) B) and C)
G) A) and E)

Question 20

The unitary tax is a device that the Federal government has developed to tax corporations on income that they have earned outside the boundaries of the United States.

Accepted Answer

A) True 
 B)False

Exam 1: An Overview of Federal Taxation

The FICA Tax rate is best considered:

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Congress has chosen to exclude many sources of income from taxation even though it has the authority to tax income from whatever source derived.

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The unitary tax is a device that the Federal government has developed to tax corporations on income that they have earned outside the boundaries of the United States.

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The gift tax and the estate tax exempt the same amount from taxation in 2012.

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Which one of the following miscellaneous types of taxes is not matched with the property or activity that is being taxed?

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The estate tax applicable credit amount effectively shields a maximum of in 2012 from estate tax

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Which one of the following statements is true?

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Which of the following is not an excise tax?

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If T is in the 35 percent tax rate bracket, then all of T's income is being taxed at 35 percent.

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The estate tax applicable credit amount is $5,120,000 million in 2012.

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Which one of the following concerning a decedent's gross estate is not true?

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T has a tax base of $30,000 and pays a tax of $2,500 on the first $25,000 and $750 on the next $5,000.T has a marginal tax rate of

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A husband gives his wife a total of $6 million in gifts for the year ended 2012.The taxable gift resulting from this transfer for the current year are

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Which of the following transactions is not matched with a tax planning technique that will have the effect of minimizing or deferring taxes?

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A source of income is taxable only when listed as a taxable source of revenue in the Internal Revenue Code.

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Which one of the following statements is not true concerning the estate tax applicable credit amount?

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Which of the following is not a true statement?

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Which one of the following statements does not apply to the Federal Insurance Contribution Act (FICA) ?

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As a source of revenue, the Federal corporate income tax is larger than the Federal individual income tax.

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The equity principle does not help explain which one of the following?

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