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Exam 1: Introduction to Taxation

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Question 41

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The FICA tax (Medicare component)on wages is progressive since the tax due increases as wages increase.

A) True
B) False

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Question 42

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Jake,the sole shareholder of Peach Corporation,a C corporation,has the corporation pay him $100,000.For tax purposes,Jake would prefer to have the payment treated as dividend instead of salary.

A) True
B) False

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Question 43

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Eagle Company,a partnership,had a short-term capital loss of $10,000 during the year.Aaron,who owns 25% of Eagle,will report $2,500 of Eagle's short-term capital loss on his individual tax return.

Federal excise taxes that are no longer imposed include:

Morgan inherits her father's personal residence including all of the furnishings.She plans to add a swimming pool and sauna to the property and rent it as a furnished house.What are some of the ad valorem property tax problems Morgan can anticipate?

Not all of the states that impose a general sales tax also have a use tax.

Carol and Candace are equal partners in Peach Partnership.In the current year,Peach had a net profit of $75,000 ($250,000 gross income - $175,000 operating expenses)and distributed $25,000 to each partner.Peach must pay tax on $75,000 of income.

Flycatcher Corporation,a C corporation,has two equal individual shareholders,Nancy and Pasqual.In the current year,Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder.Regardless of any tax consequences resulting from their interests in Flycatcher,Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket.With respect to the current year,which of the following statements is incorrect?

When Congress enacts a tax cut that is phased in over a period of years,revenue neutrality is achieved.

States impose either a state income tax or a general sales tax,but not both types of taxes.

Like the Federal counterpart,the amount of the state excise taxes on gasoline varies from state to state.

A use tax is imposed by:

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

Tax credits available for the purchase of a vehicle that uses alternative (non-fossil)fuels.

Norma formed Hyacinth Enterprises,a proprietorship,in 2015.In its first year,Hyacinth had operating income of $400,000 and operating expenses of $240,000.In addition,Hyacinth had a long-term capital loss of $10,000.Norma,the proprietor of Hyacinth Enterprises,withdrew $75,000 from Hyacinth during the year.Assuming Norma has no other capital gains or losses,how does this information affect her adjusted gross income for 2015?

Various tax provisions encourage the creation of certain types of retirement plans.Such provisions can be justified on both economic and social grounds.

Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil) fuels can be justified by:

Elk,a C corporation,has $370,000 operating income and $290,000 operating expenses during the year.In addition,Elk has a $10,000 long-term capital gain and a $17,000 short-term capital loss.Elk's taxable income is:

Don,the sole shareholder of Pastel Corporation (a C corporation),has the corporation pay him a salary of $600,000 in the current year.The Tax Court has held that $200,000 represents unreasonable compensation.Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.

The Federal excise tax on cigarettes is an example of a proportional tax.