How does the pay-as-you-go procedure apply to wage-earners?

It requires employers to withhold a specified amount of wages to cover income tax.

How does the pay-as-you-go procedure apply to people with income outside of standard wages?

It requires the taxpayer to make quarterly payments to the IRS in ESTIMATED taxes.

What does it mean for a tax to be regressive?

The rate of taxation remains CONSTANT as tax bases increases

What does it mean for a tax to be progressive?

The rate of taxation INCREASES as tax base increases, positive correlation

What is a private letter ruling?

A written determination issued by the IRS in response to a request, PRIOR to the filing of a tax return

What is the primary purpose of tax planning?

To maximize the taxpayer's after-tax wealth

What are the top 3 authoritative bodies in regard to the federal tax system?

1. The IRS 2. Proposed regulation 3. Revenue ruling The IRS is ALWAYS THE TOP REGULATOR in federal tax laws

Who can't use the tax table method?

Taxpayer's with over $100,000 in TAXABLE income

What does the recovery of capital doctrine dictate?

Prevents money from being taxed twice when capital is recovered from prior activity

What does the constructive receipt doctrine dictate?

Income is recognized when the money is made available with no restraints. This prevents the deferring of income into other tax years for cash-basis filers.

How are government bonds taxable, and are they exempt from OID (original issue discount) rules?

They are only taxed when claimed, so they grow tax-free but are taxed in the end. They are EXEMPT from OID rules.

How are stock transfers (ex. during divorce) reported for tax purposes?

No gain or loss is immediately recognized when transferred, instead only when it is cashed out. It is transferred at its ORIGINAL cost, and the gain/loss is recognized only when it is cashed.

How are SS benefits determined and taxed?

They are determined using your modified gross income, and if your income goes up for that year, you may be vulnerable to further SS taxes, making tax planning very valuable.

How do binding tax commitments work?

If you are bound to an entity (ex. a car, house, boat), when it is sold, YOU are taxed on the sale regardless of who sells it. If you are NOT bound, giving an asset to a person in a lower tax bracket is always a good idea to avoid paying higher taxes.

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Tax Exam 1 Review

Question	Answer
How does the pay-as-you-go procedure apply to wage-earners?	It requires employers to withhold a specified amount of wages to cover income tax.
How does the pay-as-you-go procedure apply to people with income outside of standard wages?	It requires the taxpayer to make quarterly payments to the IRS in ESTIMATED taxes.
What does it mean for a tax to be regressive?	The rate of taxation remains CONSTANT as tax bases increases
What does it mean for a tax to be progressive?	The rate of taxation INCREASES as tax base increases, positive correlation
Federal excise taxes apply to less items than in the past. True or false?	True
What is a private letter ruling?	A written determination issued by the IRS in response to a request, PRIOR to the filing of a tax return
What is the primary purpose of tax planning?	To maximize the taxpayer's after-tax wealth
What are the top 3 authoritative bodies in regard to the federal tax system?	1. The IRS 2. Proposed regulation 3. Revenue ruling The IRS is ALWAYS THE TOP REGULATOR in federal tax laws
Who can't use the tax table method?	Taxpayer's with over $100,000 in TAXABLE income
Are capital losses deductible for gross income?	YES
What does the recovery of capital doctrine dictate?	Prevents money from being taxed twice when capital is recovered from prior activity
Income is ??? when realized.	RECOGNIZED, taxed
What does the constructive receipt doctrine dictate?	Income is recognized when the money is made available with no restraints. This prevents the deferring of income into other tax years for cash-basis filers.
How are government bonds taxable, and are they exempt from OID (original issue discount) rules?	They are only taxed when claimed, so they grow tax-free but are taxed in the end. They are EXEMPT from OID rules.
How are stock transfers (ex. during divorce) reported for tax purposes?	No gain or loss is immediately recognized when transferred, instead only when it is cashed out. It is transferred at its ORIGINAL cost, and the gain/loss is recognized only when it is cashed.
How are SS benefits determined and taxed?	They are determined using your modified gross income, and if your income goes up for that year, you may be vulnerable to further SS taxes, making tax planning very valuable.
How do binding tax commitments work?	If you are bound to an entity (ex. a car, house, boat), when it is sold, YOU are taxed on the sale regardless of who sells it. If you are NOT bound, giving an asset to a person in a lower tax bracket is always a good idea to avoid paying higher taxes.

Created by: user-2059238

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