Chapter 1 Flashcards
1
Q
The federal income tax is the dominant form of taxation by the federal government.
A
TRUE
The federal income tax provides more revenues than any other tax.
2
Q
The Sixteenth Amendment to the U.S. Constitution permits the passage of a federal income tax law.
A
TRUE
The Sixteenth Amendment amended the Constitution to permit the imposition of an income tax.
3
Q
When a change in the tax law is deemed necessary by Congress, the entire Internal Revenue Code must be revised.
A
FALSE
The federal income tax law is changed on an incremental basis.
4
Q
The largest source of federal revenues is the
corporate income tax.
A
FALSE
The largest source is the individual income tax.
5
Q
Until about 100 years ago, attempts to impose a federal income tax were ruled unconstitutional. The amendment to the U.S. Constitution allowing the imposition of a federal income tax is the
A) Second Amendment.
B) Thirteenth Amendment.
C) Sixteenth Amendment.
D) Nineteenth Amendment.
A
Sixteenth Amendment
The Sixteenth Amendment, ratified in 1913, gave Congress the power to impose a federal income tax.
6
Q
The largest source of revenues for the federal government comes from
A) individual income taxes.
B) corporate income taxes.
C) Social Security and Medicare taxes (FICA).
D) estate and gift taxes.
A
individual income taxes
The individual income tax has provided the largest source of revenues for many years.
7
Q
A progressive tax rate structure is one where the rate of tax increases as the tax base increases.
True or False
A
TRUE
Under a progressive tax system, the rate increases as the tax base increases.
8
Q
The terms “progressive tax” and “flat tax” are synonymous.
True or False
A
FALSE
A proportional, not progressive, tax and flat tax are synonymous.
9
Q
A proportional tax rate is one where the rate of the tax is the same for all taxpayers, regardless of income levels.
A
TRUE
proportional tax = flat tax.
10
Q
Regressive tax rates decrease as the tax base increases.
A
TRUE
Regressive rates increase as the base decreases.
11
Q
The marginal tax rate is useful in tax planning because it measures the tax effect of a proposed transaction.
A
TRUE
The marginal rate applies to the planned addition to income or reduction to income.
12
Q
A taxpayer’s average tax rate is the tax rate applied to an incremental amount of taxable income that is added to the tax base.
True or False
A
FALSE
The marginal tax rate = tax rate applied to an incremental amount of taxable income.
13
Q
If a taxpayer’s total tax liability is $30,000, taxable income is $100,000, and economic income is $120,000, the average tax rate is 30 percent.
True or False
A
TRUE
The average rate = the tax liability / by the taxable income.
14
Q
If a taxpayer’s total tax liability is $4,000, taxable income is $20,000, and total economic income is $40,000, then the effective tax rate is 20 percent.
A
FALSE
The effective rate would be
$4,000/$40,000 = 10 percent.
15
Q
Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on $120,000. The tax is a
A) progressive tax.
B) proportional tax.
C) regressive tax.
D) None of the above.
A
Proportional tax
The tax rate is proportional because the 10% tax rate applies to both taxpayers regardless of their income level.
16
Q
Which of the following taxes is progressive?
A) sales tax
B) excise tax
C) property tax
D) federal income tax
A
Federal income tax
Federal income tax rates increase as a taxpayer’s taxable income rises.
17
Q
Which of the following taxes is proportional?
A) gift tax
B) income tax
C) sales tax
D) Federal Insurance Contributions Act (FICA)
A
Sales tax
A sales tax is assessed at a fixed rate of the purchase amount, based on state and local law.
18
Q
Which of the following taxes is regressive?
A) Federal Insurance Contributions Act (FICA)
B) excise tax
C) property tax
D) gift tax
A
Federal Insurance Contributions Act (FICA)
For upper-income wage earners, the Social Security tax ceases at a maximum wage base. For 2019, wages over $132,900 are not subject to the Social Security tax.
19
Q
The corporate tax rate is
A) progressive.
B) regressive.
C) proportional.
D) none of the above.
A
Proportional
The corporate tax rate is a flat 21 percent.
20
Q
Sarah contributes $25,000 to a church. Sarah’s marginal tax rate is 35% while her average tax rate is 25%. After considering her tax savings, Sarah’s contribution costs
A) $6,250.
B) $8,750.
C) $16,250.
D) $18,750.
A
$16,250
[$25,000 × (100% - 35%)] = $16,250
21
Q
Helen, who is single, is considering purchasing a residence that will provide an $18,000 tax deduction for property taxes and mortgage interest. If her marginal tax rate is 24% and her effective tax rate is 20%, what is the amount of Helen’s tax savings from purchasing the residence?
A) $3,600
B) $4,320
C) $3,200
D) $18,000
A
$4,320
$18,000 × .24 marginal rate = $4,320 tax savings.
22
Q
Charlotte pays $8,000 in tax deductible property taxes. Charlotte’s marginal tax rate is 24%, effective tax rate is 20% and average rate is 22%. Charlotte’s tax savings from paying the property tax is
A) $1,600.
B) $1,760.
C) $1,920.
D) $8,000.
A
$1,920
$8,000 × 0.24 = $1,920
23
Q
Briana, who is single, has taxable income for 2019 of $90,000, resulting in a total tax of $15,775. Her total economic income is $100,000. Briana’s average tax rate and effective tax rate are, respectively,
A) 17.53% and 15.78%.
B) 17.53% and 24%.
C) 15.78% and 24%.
D) 15.78% and 17.53%.
A
17.53% and 15.78%
Average tax rate: $15,775 ÷ $90,000 = 17.53%
Effective tax rate: $15,775 ÷ $100,000 = 15.78%
24
Q
Larry and Ally are married and file a joint return. They are considering purchasing a personal residence that will generate two deductions: $10,000 in home mortgage interest and $8,000 in real estate taxes. Their marginal tax rate is 24%. What is the total tax savings if Larry and Ally purchase the residence?
A
($10,000 + $8,000) × .24 = $4,320
25
Larry and Ally are married and file a **joint return**. They are considering purchasing a personal residence that will generate two deductions: **$10,000** in home **mortgage interest** and **$8,000** in **real estate taxes**. Their **marginal tax rate is 24%**. If Larry and Ally purchase the residence, what will be the **after-tax cost** of the additional **$18,000** in expenditures?
**Tax savings of expenditures: ($10,000 + $8,000) × .24 = $4,320**
**After-tax cost:: $18,000 - $4,320 = $13,680.**
26
_All_ states impose a **state income tax** which is generally based on an individual's federal adjusted gross income (AGI) with minor adjustments.
True or False
**FALSE**
While many states impose a state income tax, **not all states do**. In those states that do impose tax, the taxes vary greatly in both form and rates.
27
The **unified transfer tax system**, comprised of the **gift** and **estate** taxes, is based upon the **total property transfers** an individual makes during **lifetime** and at **death**.
True or False
**TRUE**
Gift and estate taxes, which comprise a unified transfer tax system, are based on cumulative transfers.
28
**Gifts** between **spouses** are generally **exempt**
from **transfer taxes**.
**TRUE**
The tax law allows for **unlimited transfers** between **spouses**.
29
The **primary liability** for **payment** of the **gift tax** is
**imposed** upon the **donee**.
**FALSE**
The **gift** tax is imposed on the **donor**.
30
For **gift tax** purposes, a **$15,000** **annual exclusion**
per **donee** is **permitted**.
**TRUE**
**Donors** are **allowed to exclude $15,000** per **donee** per year for **gift tax purposes**.
31
An individual will be subject to **gift tax** on gifts made to a **charity greater** than **$15,000**.
**FALSE**
**Contributions to charity** are **not limited** by the
**$15,000 gift tax exclusion.**
32
**Property** is **generally included** on an **estate tax return** at its **historical cost basis**.
True or False
**FALSE**
Property is **generally valued** at **fair market** **value** at **date of death** or the **alternate valuation date**.
33
**Property transferred** to the **decedent's spouse** is **exempt** from the **estate tax** because of the **estate tax marital deduction provision.**
**TRUE**
The **estate** and **gift tax** law allows t**ax-exempt**
**transfers to spouses**.
34
**Gifts** made during a taxpayer's **lifetime** may affect the **amount** of **estate tax paid** by the **taxpayer's estate**.
**TRUE**
**Gift and estate taxes** are **applied** to **cumulative transfers** under the **uniform tax system**.
35
While **federal** and **state income taxes**, as well as the **federal gift** and **estate taxes**, are **generally progressive** in nature,
**property taxes** are **proportional**.
True or False
**TRUE**
**Property taxes** are **assessed** on the **value of the property.**
36
The **unified transfer** tax system
## Footnote
A) imposes a single tax upon transfers of property during an individual's lifetime only.
B) imposes a single tax upon transfers of property during an individual's life and at death.
C) imposes a single tax upon transfers of property only at an individual's death.
D) none of above.
Imposes a **single tax** upon **transfers** of **property** during an individual's **life** and at **death**.
37
When **property** is **transferred**, the **gift tax** is based on
A) replacement cost of the transferred property.
B) fair market value on the date of transfer.
C) the transferor's original cost of the transferred property.
D) the transferor's depreciated cost of the transferred property.
**Fair market value on the date of transfer.**
The **gift tax** is based on the **property's fair market** **value** on the **date of transfer.**
38
Paul makes the following property transfers in the current year:
* $22,000 cash to his wife
* $34,000 cash to a qualified charity
* **$220,000 house to his son**
* $3,000 computer to an unrelated friend
The total of Paul's **taxable gifts**, assuming he does not elect **gift splitting** with his **spouse**, subject to the **unified transfer tax** is
A) $205,000.
B) $212,000.
C) $245,000.
D) $279,000.
**$205,000.**
$220,000 - $15,000 = $205,000.
The **gift** to the **unrelated friend** is below the **$15,000 annual gift tax exclusion.** The **gifts** to his **wife** and to the **charity** are **not subject to gift tax.**
39
Charlie makes the following gifts in the current year: $40,000 to his _spouse_, $30,000 to his _church_, **$18,000** to his _nephew_, and **$25,000** to a _friend_. Assuming Charlie **does not** elect **gift splitting** with his wife, his **taxable gifts** in the current year will be
A) $28,000.
B) $13,000.
C) $25,000.
D) $43,000.
**$13,000**
($18,000 - $15,000) + (25,000 - $15,000) = $13,000.
The gift to his **spouse** and the **charitable** gift are
**not subject** to **gift taxes**.
40
Shaquille buys new cars for **five** of his friends. Each car cost **$70,000**. What is the amount of Shaquille's **taxable gifts**?
A) $0
B) $275,000
C) $335,000
D) $350,000
**$275,000**
5 × ($70,000 - $15,000) = $275,000
41
In 2019, an **estate** is **not taxable** unless the **sum** of the **taxable estate** and **taxable gifts** made after 1976 exceeds
A) $4,505,800.
B) $10,000,000.
C) $5,000,000.
D) $11,400,000.
**$11,400,000**
The **unified credit equivalent** for estate and gift taxes is
**$11,400,000** for **2019**.
42
Eric dies in the current year and has a gross estate valued at **$16,500,000**. The estate incurs funeral and administrative expenses of **$100,000** and also pays off Eric's debts which amount to **$250,000**. Eric bequeaths **$600,000** to his wife. Eric made **no taxable transfers** during his life. Eric's taxable estate will be
A) $4,250,000.
B) $15,550,000.
C) $4,150,000.
D) $16,500,000.
**$15,550,000.**
($16,500,000 - $100,000 - $250,000 - $600,000) = $15,550,000
43
Jose dies in the current year and has a gross **estate valued** at **$13,000,000** in 2019. Over the past ten years, Jose had made taxable **gifts** of **$400,000**. The estate incurs funeral and administrative expenses of **$100,000** and also pays off Jose's debts which **amount** to **$300,000**. Jose bequeaths **$500,000** to his wife. What is the amount of Jose's tax base, the amount on which the **estate tax** is computed?
A) $12,100,000
B) $12,500,000
C) $700,000
D) $1,100,000
**$12,500,000**
$13,000,000 - $100,000 **funeral/administrative expense** - $300,000 **liabilities** - $500,000 **marital transfers** = $12,100,000 **taxable estate** + $400,000 **gifts** = $12,500,000 **tax base**
44
Which of the following statements is **incorrect**?
A) Property taxes are levied on real estate.
B) Excise taxes are assessed on items such as gasoline and telephone use.
C) Gift taxes are imposed on the recipient of a gift.
D) The estate tax is based on the fair market value of property at death or the alternate valuation date.
**Gift taxes are imposed on the _recipient_ of a gift.**
## Footnote
Gift taxes are imposed on the **_donor_** of a gift, **_not the recipient._**
45
Kole earns **$140,000** in 2019 in his job as a sales manager. What is his **FICA tax**?
A) $10,270
B) $8,240
C) $10,710
D) $10,167
**$10,270**
(132,900 × **.062**) + (140,000 × .**0145**) = **$10,270**
46
Jillian, a **single individual**, earns **$230,000** in 2019 through her job as an **accounting manager**. What is her **FICA tax**?
A) $11,845
B) $11,575
C) $17,595
D) $10,167
**$11,845**
(132,900 × .062) + (230,000 × .0145) +
((230,000 - 200,000)
× .009) = $11,845
47
Martha is **self-employed** in 2019. Her self employment income is **$140,000**. What is her **self-employment tax**?
A) $20,334
B) $20,540
C) $21,420
D) None of the above
**$20,540**
(132,900 × .124) + (140,000 × .029) = $20,540
48
Vincent makes the following **gifts** during 2019:
$15,000 cash _gift_ to wife
Gift of automobile valued at **$35,000** to his _adult son_
Gift of golf clubs valued at **$5,000** to a _friend_
**$10,000** contribution to _church_
Although he is married, none of the gifts are considered joint gifts with his wife. What are the total taxable gifts subject to the unified transfer tax?
_Gift Value_
_Adjustment_
_Taxable Gift_
Cash to wife
$15,000
spousal gifts excluded
$ 0
Auto to son
35,000
less $15,000 exclusion
20,000
Clubs to friend
5,000
less $15,000 exclusion
0
Church donation
10,000
charity gifts excluded
_0_
Taxable gifts
_$20,000_
49
Jeffery **died** in 2019 leaving a **$16,000,000** gross estate. Six months after his death, the gross assets are valued at **$16,100,000**. In years prior to 2019 (but after 1976), Jeffery had made **taxable gifts** of **$300,000**. Of the **$16,000,000 gross estate, estate assets valued** at **$3 million** were transferred to his _wife_ and **$100,000** was used to pay **administrative** and **funeral expenses**. Jeffery had **debts of $200,000** which were paid by the estate, and the remainder of the estate was **transferred** to his **children**.
a. What is the amount of Jeffery's taxable estate?
b. What is the tax base for computing Jeffery's estate?
c. What is the amount of estate tax owed if the unified credit is $4,505,800?
d. Alternatively, if six months after his death, the gross assets in Jeffery's estate declined in value to $15,000,000, can the administrator of Jeffery's estate elect the alternate valuation date?
Gross Estate
$16,000,000
Minus: Funeral and administrative expenses
( 100,000)
Minus: Debts
( 200,000)
Minus: Marital deduction
(_3,000,000_)
**Taxable estate (a)**
**$12,700,000**
Plus: Taxable gifts made after 1976
_300,000_
**Tax base (b)**
**_$13,000,000_**
Tentative tax on estate tax base $345,800 + [.4 × (13,000,000 - $1,000,000)]
$ 5,145,800
Minus: Tax credits (unified tax credit)
_4,505,800_
**Unified transfer tax due (c)**
**_$ 640,000_**
The **alternate valuation date** (six months after the date of death) may be elected only if the **aggregate value** of the **gross estate decreases** during the six-month period following the **date of death** and the **election results** in a **lower estate tax liability.** In this case, the **alternate valuation date** can be elected.
50
Mia is **self-employed** as a consultant. During 2019, Mia earned **$180,000** in **self-employment income.**
What is Mia's self-employment tax?
0. 124 × $132,900 = $16,480
0. 029 × $180,000 = 5,220
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
**Self-employment tax $21,700**
51
**Adam Smith's canons** of taxation are **equity, certainty, convenience,** and **economy**.
True or False
**TRUE**
Adam Smith's canons of taxation include equity, certainty, convenience and economy.
52
The **primary objective** of the **federal income tax law** is to achieve **various economic** and **social policy objectives.**
True or False
**FALSE**
The **primary objective** of the **federal income tax law** is to
**raise revenues** for **government operations.**
53
Which of the following is **not** one of **Adam Smith's canons of taxation**?
A) equity
B) convenience
C) certainty
D) economic stimulation
**Economic stimulation**
Smith's canons of taxation are **equity, certainty, convenience** and **economy** (in terms of administration of the tax system).
54
**Horizontal equity** means that
A) taxpayers with the same amount of income should pay the same amount of tax.
B) taxpayers with larger amounts of income should pay more tax than taxpayers with lower amounts of income.
C) all taxpayers should pay the same tax.
D) None of the above.
**Taxpayers** with the **same amount** of **income** should pay the **same amount of tax.**
**Horizontal equity** means that taxpayers with the **same amount** of income
should pay the **same amount of tax.**
55
**Vertical equity** means that
A) taxpayers with the same amount of income should pay the same amount of tax.
B) taxpayers with larger amounts of income should pay more tax than taxpayers with lower amounts of income.
C) all taxpayers should pay the same tax.
D) None of the above.
**taxpayers** with **larger amounts** of **income** should **pay more tax** than
taxpayers with **lower amounts** of **income**.
56
Which of the following is **not** an **objective** of the **federal income tax law**?
A) Stimulate private investment.
B) Redistribution of wealth.
C) Encourage research and development activities.
D) Prevent taxpayers from paying a higher percentage of their income in personal income taxes due to inflation.
**Redistribution of wealth.**
**Redistribution of wealth** is **not** an **objective** of the **federal income tax law.**
57
Which of the following is **not** a **social objective** of the **tax law**?
A) prohibition of a deduction for illegal bribes, fines and penalties
B) a deduction for charitable contributions
C) an exclusion for interest earned by large businesses
D) creation of tax-favored pension plans
**an exclusion for interest earned by large businesses**
There is **no exclusion** for **interest income earned** by large businesses.
58
**Individuals** are the **principal taxpaying entities** in the **federal income tax system.**
True or False
**TRUE**
**Revenues** from **income taxation** of **individuals far exceed** those of other **taxpayers**.
59
**Dividends** paid from most U.S. **corporations are taxed** at the **same rate** as the **recipients' salaries and wages.**
**True or False**
**FALSE**
**Qualifying dividends** are **taxed** at a **preferential rate.**
60
**Flow-through** entities **do not have** to file tax returns since they are **not taxable entities.**
True or False
**FALSE**
**S Corporations**, **partnerships** and **limited liability companies** have to
file an **informational tax return each year.**
61
**Organizing** a **corporation** as an **S Corporation** results in a **single level of taxation.**
True or False
**TRUE**
**S Corporations do not pay tax.** Owners of the **corporation** pay tax on **their share** of the **corporation's taxable income,** but **do not pay tax** on the **distributions received.**
62
In a **limited liability partnership (LLP)**, a **partner** is **not liable** for his
**partner's acts** of **negligence** or **misconduct**.
True or False
**TRUE**
A **partner** in an **LLP** is **liable** for his **_own acts_** of **negligence** or **misconduct**,
but **_not those_ of his partners.**
63
Limited liability companies (**LLC)** may **elect** to be **taxed** as **corporations**.
True or False
**TRUE**
An LLC can **affirmatively elect** to be **taxed as a corporation.**
64
Limited liability company (**LLC**) members (**owners**) are **responsible** for the **liabilities of their limited liability company.**
True or False
**FALSE**
**Limited liability company** members **have protection from entity-level liability** in a manner similar to that of shareholders of corporations.
65
Which of the following is **_not_** a **taxpaying entity**?
A) C corporation
B) partnership
C) individual
D) All of the above are taxpayers.
**Partnership**
A **partnership** is a **flow-through entity.**
66
_All_ of the following are classified as **flow-through entities** for **tax purposes**
_except_
A) partnerships.
B) C corporations.
C) S corporations.
D) limited liability companies.
**C corporations**
**C corporation** is a **taxpaying entity**.
67
Firefly Corporation is a C corporation. Freya owns **all of the stock**. During the current year, Firefly earned a taxable income of $500,000 and paid a $300,000 dividend to Freya. Which of the following statements is correct?
A) Firefly will pay corporate income tax on its earnings, and Freya will pay individual income tax on the dividends.
B) Only Firefly will pay taxes. Freya will not pay any taxes due to her holdings in Firefly.
C) Firefly's income will flow through to Freya's tax return, and she will pay the taxes on the $500,000 of corporate income.
D) Firefly will not pay any taxes, but Freya will pay taxes on the dividend received.
**Firefly** will **pay corporate income tax** on its **earnings**, and **Freya** will pay **individual income tax** on the **dividends.**
The **C corporation** pays tax on its **own taxable income**, and then a second layer of **tax is paid by the shareholders when dividends are paid to them.**
68
Rocky and Charlie form RC **Partnership** as **equal partners**. Rocky contributes $100,000 into RC while Charlie contributes real estate with a cost and fair market value of $100,000. During the current year, RC **earned net income of $600,000.** The **partnership** distributes **$200,000 to each partner.** The amount that **Rocky should report on his individual tax return is**
A) $0.
B) $100,000.
C) $200,000.
D) $300,000.
**$300,000.**
Rocky must report 50% × $600,000 or $300,000, his share of partnership net income. The distribution of **$200,000 is not taxable** but rather a **nontaxable return of capital** reducing Rocky's basis **($100,000 original investment + $300,000 share of income**) by **$200,000 to $200,000.**
69
AB Partnership earns **$500,000** in the current year. Partners **A and B are equal partners** who **do not** receive any **distributions** during the year. How much **income** does **partner A** report from the **partnership**?
A) $0
B) $250,000
C) $500,000
D) None of the above
**$250,000**
Partners are taxed on their **share of partnership income**, regardless of whether they receive a **distribution**. **$500,000 × .5 = $250,000**
70
In an **S corporation**, shareholders
A) are taxed on their proportionate share of earnings.
B) are taxed only on dividends.
C) may allocate income among themselves in order to consider special contributions.
D) are only taxed on salaries.
**are taxed on their proportionate share of earnings.**
Similar to partners in a partnership, **S corporation** shareholders are **taxed on their proportionate** share of the **income earned by the corporation**, regardless of distribution payments
71
Fireball Corporation is an S corporation. Leyla owns all of the stock. During the current year, Fireball earned taxable income of $500,000 and paid a $300,000 distribution to Leyla. Which of the following statements is correct?
A) Fireball will pay corporate income tax on its earnings, and Leyla will pay individual income tax on the distribution.
B) Only Fireball will pay taxes. Leyla will not pay any taxes due to her holdings in Fireball.
C) Fireball's income will flow through to Leyla's tax return, and she will pay the taxes on the $500,000 of corporate income.
D) Fireball will not pay any taxes, but Leyla will pay taxes on the distribution received.
**Fireball's income will flow through to Leyla's tax return, and she will pay the taxes on the $500,000 of corporate income.**
Similar to partners in a partnership, S corporation shareholders are taxed on their proportionate share of the income earned by the corporation, regardless of distribution payments.
72
All of the following statements are **true** _except_
A) the net income earned by a sole proprietorship is reported on the owner's individual income tax return.
B) the net income of an S corporation is subject to double taxation because it is taxed at the entity level and dividends paid from the S corporation to individual shareholders are also taxed.
C) the net income of C corporation is subject to double taxation because it is taxed at the entity level and dividends paid from the C corporation to individual shareholders is also taxed.
D) LLCs are generally taxed as partnerships.
**the net income of an S corporation is subject to double taxation because it is taxed at the entity level and dividends paid from the S corporation to individual shareholders are also taxed.**
An **S corporation** is a **flow-through entity,** _not a taxable entity._ The items of income/loss are allocated to **each shareholder** who pays tax on the items on **his or her individual income tax return.**
73
Brad and Angie had the following **income** and **deductions** during 2020:
Salaries $110,000
Interest income 10,000
Itemized deductions 26,000
Taxes withheld during year 12,000
Calculate Brad and Angie's **tax liability** due or **refund**. They file a **joint tax return.**
Tax = $9,086 + .22(94,000 - 78,950) = $12,397
$12,397 - **12,000 taxes withheld** = **$397 taxes due**
74
Chris, a **single** taxpayer, had the following income and deductions during 2019:
Salary $65,000
Interest on bank account 300
Tax-exempt interest 200
Deduction for AGI 3,500
Itemized deductions 13,000
Taxes withheld 7,500
Calculate Chris's **tax liability** due or **refund**.
**Tax** $4,543 + .22(48,800 - 39,475) = **$6,594.50**
$7,500 taxes withheld -$6,594.50 = **$905.50 tax refund**
75
During the current tax year, Frank Corporation generated **gross income** of **$1,900,000** and had **ordinary** and **necessary deductions** of **$1,400,000**. What is the amount of Frank Corporation's **corporate income tax** for the year?
**Taxable income** is $1,900,000 - $1,400,000 = **$500,000.**
($500,000 × 0.21) = **$105,000 tax**
**Corporate Tax Rate in the United States is 21%**
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During the current tax year, Charlie Corporation generated **gross income** of **$1,800,000** and had **ordinary** and **necessary deductions** of **$1,300,000**, resulting in **taxable income of $500,000.** If Charlie Corporation paid **qualifying dividends** of **$200,000** to shareholders, all of whom are in the **24% marginal tax bracket**, what is the **total tax paid** on _both_ **corporate income** and the **corporate dividends**?
**Corporate taxable income** is $1,800,000 - $1,300,000 = **$500,000**. *_Dividends are not tax-deductible._*
**Corporate tax:** ($500,000 × .21) = **$105,000**
Shareholder tax on **qualifying dividend**s: (**$200,000** × **0.15 maximum rate** on **qualifying dividends** for taxpayers in **24% marginal** tax bracket) = **$30,000**
**Total Tax: $105,000 + $30,000 = $135,000**
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Doug and Frank form a **partnership**, D and F Advertising, each contributing **$50,000** to start the business. During the first year of operations, D and F earns **$80,000,** which is allocated **$40,000** each to Doug and Frank. At the beginning of the second year, Doug **sells his interest** to Marcus for **$90,000**. What is the amount of **Doug's taxable gain on the sale**?
**There is no gain on the sale.**
Amount realized $90,000
Adjusted basis \* -90,000
**Gain or loss on sale. 0**
\***Adjusted basis** as of date of sale is the **$50,000** **contributed** basis plus the **$40,000 income** allocated to basis.
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