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Exam 1: An Introduction to Tax

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Question 1

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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 2

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Regressive tax rate structures are typically considered to be vertically equitable.

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B) False

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Question 3

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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 2020, 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.)

In a proportional (flat)tax rate system, the marginal tax rate will always equal the average tax rate.

Horizontal equity is defined in terms of taxpayers in similar situations whereas vertical equity is defined in terms of taxpayers in different situations.

Curtis invests $775,000 in a city of Athens bond that pays 9.75 percent interest. Alternatively, Curtis could have invested the $775,000 in a bond recently issued by Initech, Incorporated that pays 12.00 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. If Curtis invested in the Initech, Incorporated bonds, what would be his after-tax rate of return from this investment?

Leonardo, who is married but files separately, earns $70,500 of taxable income. He also has $19,400 in city of Tulsa bonds. His wife, Theresa, earns $54,400 of taxable income. If Leonardo and his wife are married filing jointly in 2020, what is Leonardo and Theresa's effective tax rate for 2020? (Use tax rate schedule.) (Round your final answer to two decimal places.)

Congress recently approved a new, smaller budget for the IRS. What taxation concept evaluates the cost of administering our tax law?

Mandy, the mayor of Bogart and a strong advocate of a clean downtown, is proposing an increase in the city sales tax from 7 percent to 50 percent on all packs of chewing gum purchased in Bogart. Based on the current gum sales, Mandy estimates that this tax will actually reduce the tax revenue on gum sales. What type of forecasting is Mandy using to derive her tax revenue estimates? What "effect" is her estimate based on? Does this necessarily imply that Mandy will be happy given her desire to have a clean downtown?

If Susie earns $798,000 in taxable income, how much tax will she pay as a single taxpayer for 2020? (Use tax rate schedule.)

Leonardo, who is married but files separately, earns $67,000 of taxable income. He also has $18,000 in city of Tulsa bonds. His wife, Theresa, earns $53,000 of taxable income. If Leonardo instead had $33,000 of additional tax deductions for 2020, his marginal tax rate on the deductions would be: (Use tax rate schedule.) (Round your final answer to two decimal places.)

Dynamic forecasting does not take into consideration taxpayers' responses to a tax change when estimating tax revenues.

Which of the following is true regarding tax-advantaged assets?

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

Geronimo files his tax return as a head of household for year 2020. If his taxable income is $73,600, what is his average tax rate? (Use tax rate schedule.) (Round your final answer to two decimal places.)

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

Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Incorporated that pays 9 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. If Curtis invested in the Initech, Incorporated bonds, what would be his after-tax rate of return from this investment?

Jed Clampett is expanding his family-run beer distributorship into Georgia or Tennessee. His parents began the business many years ago and now three generations of Clampetts work in the family business. Jed will relocate the entire family (his parents, spouse, children, etc.)to either state after the move. What types of taxes may influence his decision of where to locate his business? What nontax factors may influence the decision?

Estimated tax payments are one way the federal income tax system addresses the "certainty" criterion in evaluating tax systems.

Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Incorporated that pays 9 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. How much implicit tax would Curtis pay on the city of Athens bond?