Proportional Tax Flashcards
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Questions and Answers

What is an example of a proportional tax?

State general sales tax

Who is a use tax imposed by?

Most states but not the government

How to determine the annual exclusion for gifts?

(Number of donees)(14,000 annual exclusion)(number of donees)

When transferring property why prefer the gift approach?

<p>To take advantage of the per donee annual exclusion</p> Signup and view all the answers

Characteristics of FICA include?

<p>Imposed on both employer and employee</p> Signup and view all the answers

Characteristics of FUCA include?

<p>Applicable at both state and federal levels</p> Signup and view all the answers

The U.S. imposes export duties.

<p>False</p> Signup and view all the answers

Which tax would simplify income tax?

<p>Flat tax</p> Signup and view all the answers

Taxes on consumption include?

<p>General sales tax</p> Signup and view all the answers

Facts about VAT include?

<p>It is regressive</p> Signup and view all the answers

When are special agent auditors assigned?

<p>When fraud might be involved</p> Signup and view all the answers

What validated the tax on individuals?

<p>16th Amendment</p> Signup and view all the answers

What were the first levied income tax rates?

<p>Low 2%, High 6%</p> Signup and view all the answers

Which generates more revenue, income tax or tax on corporations?

<p>Income tax</p> Signup and view all the answers

Examples of progressive taxes include?

<p>Estate tax</p> Signup and view all the answers

Examples of proportional taxes include?

<p>FICA</p> Signup and view all the answers

Will conversion from residential to rental change the tax?

<p>True</p> Signup and view all the answers

Is a fixture an ad valorem on personalty or realty?

<p>Realty</p> Signup and view all the answers

What is all property other than realty?

<p>Personalty</p> Signup and view all the answers

What are Adam Smith's canons of taxation?

<p>Convenience</p> Signup and view all the answers

Does the excise tax on gasoline vary from state to state?

<p>False</p> Signup and view all the answers

Every state that has a sales tax also has a _____?

<p>Use tax</p> Signup and view all the answers

On transfers by death, what does the federal government rely on, and what do states rely on?

<p>Federal government - estate tax, States - inheritance tax</p> Signup and view all the answers

What is a tax on a heir's right to receive property from a decedent?

<p>Inheritance tax</p> Signup and view all the answers

What was the major reason for the enactment of the Federal estate tax?

<p>To prevent large amounts of wealth from being accumulated within the family unit</p> Signup and view all the answers

What are the three types of income taxes?

<p>Federal</p> Signup and view all the answers

What are the three types of transaction taxes?

<p>Excise</p> Signup and view all the answers

What are death taxes?

<p>Inheritance tax</p> Signup and view all the answers

What reduces or eliminates the estate tax liability for certain estates?

<p>Unified transfer tax credit</p> Signup and view all the answers

What is the annual exclusion per donee?

<p>14,000</p> Signup and view all the answers

Examples of the excise taxes include?

<p>All of the above</p> Signup and view all the answers

What is the purpose of the use tax?

<p>Prevent the avoidance of the sales tax through the purchase of items in other states</p> Signup and view all the answers

What is a tax on natural resources extracted?

<p>Severance tax</p> Signup and view all the answers

When is a death tax classified as an estate tax?

<p>If imposed on the right to pass property at death</p> Signup and view all the answers

What is the determination of the amount of taxable gift?

<p>FMV - annual exclusion - marital deduction</p> Signup and view all the answers

Are individual and corporate federal income tax proportional or progressive?

<p>False</p> Signup and view all the answers

Formula for federal income tax on individuals?

<p>Income, Less: exclusions, Gross income, Less: deductions for AGI, AGI, Less: itemized or standard deductions, Less: personal and dependency exemptions, Taxable income, Tax on taxable income, Less: tax credits, Tax due</p> Signup and view all the answers

Provide an example of FICA.

<p>Social Security</p> Signup and view all the answers

What are unemployment taxes?

<p>FUTA</p> Signup and view all the answers

Study Notes

Proportional Taxes

  • Proportional taxes maintain a constant rate relative to the tax base, with examples including state general sales tax and FICA.

Use Tax

  • Imposed by most states to ensure sales tax is collected on out-of-state purchases, preventing tax avoidance.

Gift Tax Exemption

  • Determined by the formula: (Number of donees) x (14,000 annual exclusion) x (number of donees), providing significant tax relief on gifts.

FICA Characteristics

  • Imposed on both employers and employees.
  • Includes retirement income and is federally administered.
  • Spouses working together are not exempt.

FUTA Characteristics

  • Focused solely on employers.
  • Covers unemployment taxes at both state and federal levels.

International Trade Taxes

  • The U.S. does not impose export duties, promoting international sales.

Simplification of Income Tax

  • A flat tax system could streamline income tax processes.

Consumption Taxes

  • Include VAT (Value Added Tax) and general sales tax, impacting consumer spending.

VAT Characteristics

  • Regressive in nature and widely adopted by various countries.

Special Agent Auditors

  • Assigned when there are indications of fraud to ensure compliance.

Individual Taxation Validation

  • The 16th Amendment validated the taxation of individuals in the U.S.

Historical Income Tax Rates

  • Initial rates were 2% for low brackets and up to 6% for high brackets.

Revenue Generation Comparison

  • Income tax generates more revenue than corporate taxes.

Progressive Taxes Examples

  • Include estate taxes and gift taxes, based on an individual's ability to pay.

Conversion of Property Taxation

  • Changing property from residential to rental alters tax implications significantly.

Property Classification

  • Fixtures are categorized under realty, while all other property is referred to as personalty.

Adam Smith's Taxation Principles

  • Emphasizes equality, convenience, certainty, and economy in tax systems.

Excise Tax Consistency

  • Gasoline excise tax remains consistent across states, ensuring uniformity.

Sales and Use Taxes

  • Every state with a sales tax implements a corresponding use tax.
  • The federal government relies on estate tax, while states may depend on inheritance taxes.

Inheritance Tax Definition

  • A tax on an heir's right to receive property from a decedent.

Federal Estate Tax Motivation

  • Enacted to prevent the concentration of wealth within families across generations.

Types of Income Taxes

  • Comprise federal, state, and city income taxes.

Transaction Taxes Varieties

  • Include excise, sales, and severance taxes.

Death Taxes Overview

  • Comprises both estate and inheritance taxes.

Unified Transfer Tax Credit

  • Designed to reduce or eliminate estate tax liability for certain estates.

Annual Exclusion for Gifts

  • Currently set at $14,000 per donee.

Examples of Excise Taxes

  • Include taxes on gasoline, tobacco, liquor, telephone services, and air travel.

Purpose of Use Tax

  • Exists to maintain sales tax integrity by taxing items bought out-of-state without a sales tax.

Severance Tax Definition

  • Tax levied on the extraction of natural resources.

Classification of Death Taxes

  • Estate tax applies to the right to transfer property, while inheritance tax applies to the rights of receiving it.

Taxable Gift Calculation

  • Determined by Fair Market Value (FMV) minus annual exclusion and marital deduction.

Income Tax Structure

  • Both individual and corporate federal income taxes are progressive, adjusting based on income levels.

Federal Income Tax Formula for Individuals

  • Involves multiple steps, from gross income calculation to deductions and credits for final tax due.

FICA Example

  • Social Security tax serves as a primary example of the FICA tax system.

Unemployment Taxes

  • Federal Unemployment Tax Act (FUTA) governs unemployment tax regulations.

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Test your knowledge on proportional taxes with these flashcards. Each card provides key terms and definitions related to tax concepts, including state general sales tax and gift exclusions. Perfect for students in finance or accounting courses.

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