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Posted on Aug 08, 2024

1. FarmCo could build and sell tractors in the United States, but the company decides to build and sell the tractors in South American countries.

1. FarmCo could build and sell tractors in the United States, but the company decides to build and sell the tractors in South American countries. Why would FarmCo do this?

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FarmCo would do this if the tax rates were lower in South America.
FarmCo would do this if the labor costs were lower in South America.
FarmCo would do this to reduce its production and shipping costs.
FarmCo would do this because it can receive a credit on its US taxes for foreign sales.

2. Why would a taxpayer shift income from "one pocket to another"?

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to avoid paying the amount of tax due under the law
to change the rate at which the income is taxed
to shift income from a high tax state to a low tax state
to delay taxation of the income

3. Among the books and records kept by a sophisticated company, which record most closely relates to the objectivity of income tax rules?

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accounting income
economic income
cash flows
taxable income

4. While corporations are said to be double taxed, how can this double taxation be avoided?

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by a corporation reducing its annual income
by a corporation deducting interest income
by a corporation putting its profits back into the business
by a corporation distributing its profit as dividends

5. Which percentage of total income tax revenue received by the U.S. government comes from corporations?

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6. Aside from tax implications, why would a startup business choose a corporate form?

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because corporations have the easiest means to transfer ownership interests
because sole proprietorships have joint and several liabilities
because corporations are the easiest type of business entity to form
because partnerships have individual liability

7. Which type of taxes are levied on the same product at the production level, the wholesale level, and the retail level?

Select an answer:

usage tax
sales tax
value-added tax
property tax

8. Fremka files her return as Head of Household with two children under 17 years old. Fremka earned $41,000 last year. Which tax credit would provide a refund to Fremka, even if she did not owe any tax?

Select an answer:

the Earned Income Credit
the Child Tax Credit
the Head of Household Credit
the Standard Deduction

9. Nguyen Van Tuan and Nguyen Thi Lan both earned $50,000 last year. Thi Lan also paid $4,000 into an IRA. Which will the Nguyens' AGI be if they both take the $12,000 standard deduction?

Select an answer:

80000
84000
72000
88000

10. Nguyen Tuan and Bian Tuan both earned $50,000 last year. Thi Lan also paid $4,000 into an IRA. Which will the Nguyens enter in Schedule 1 when they file their tax returns?

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54000
9000
4000
96000

11. When would you use Schedule A while doing your tax return?

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when you want to take the standard deductions on your tax return
when you are preparing your tax return as married filing single
when you have received income from self-employment in the tax filing year
when you have deductions you can itemize that are larger than the standard deduction

12. You do business in a country that has a 0% tax rate on the first $20,000; 20% from $20,001 to $75,000; and 45% on income above $75,000. This is an example of which kind of tax system?

Select an answer:

standard tax system
progressive tax system
average tax system
simple tax system

13. What is the key to being able to confidently do your federal income taxes?

Select an answer:

Know the tax code.
Hire a tax expert.
Keep good records.
Find the loopholes.

14. For individual taxpayers, which are the two largest tax breaks in dollar amounts?

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exclusion of pension contributions and earnings and exclusion of employer contributions for medical insurance and medical care
exclusion of pension contributions and earnings and reduced tax rates on dividends and capital gains
child tax credit and exclusion of employer contributions for medical insurance and medical care
deductibility of charitable contributions and deductibility of mortgage interest on owner-occupied homes

15. Every businessman should understand the Laffer Curve. Which takeaway from the Laffer Curve is the most important?

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The optimal tax rate is the rate that most prevents people from being disincentivized to work.
The optimal tax rate is the rate that will provide the greatest incentive for individuals to work.
The optimal tax rate is the rate that gives the government the highest possible tax revenue.
The optimal tax rate is the rate that gives the government the exact amount of tax revenue to sustain the budget.

16. If a government imposed a 100 percent income tax rate, what would be the likely result?

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If every dollar of income were taken in taxes, most individuals would simply not work.
At a 100 percent tax rate, individuals would understand that everyone pays his or her fair share.
If every dollar of income were taken in taxes, most individuals would still work for the common good.
At a 100 percent tax rate, employee pay would increase to offset the tax.

17. In which type of business structure does an individual's share of income flow through to the individual's personal tax return?

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a corporation
a foreign corporation
a sole proprietorship
a partnership

18. How did the monetary value of health care insurance provided by employers become exempt from income tax as favored treatment by the IRS?

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After World War II, employers provided health insurance as an additional inducement to attract the best employees.
During World War II, when wage controls were in place, employers could only attract new employees by paying for their health insurance.
After World War II, the tax code was changed to allow employers to call a percentage of employee pay "health insurance."
During World War II, when wage controls were in place, employers took a portion of employees' salaries for health insurance.

19. There is a simple rule to remember regarding deductible expenses if you own a small business. Which rule is this?

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Deductible expenses must be reasonable and documented.
Deductible expenses must be ordinary and necessary.
Deductible expenses must be documented and necessary.
Deductible expenses must be ordinary and infrequent.

20. XYZ Inc., with income of $1 million, has a choice of a $100,000 tax deduction or a $100,000 tax credit. Which option should XYZ choose?

Select an answer:

XYZ should choose the option that will result in the most fair tax obligation.
XYZ should choose the tax deduction, because its final tax obligation will be reduced by $100,000.
XYZ should choose the tax credit, because its final tax obligation will be reduced by $100,000.
XYZ should choose the option that fits best with its strategic plan.

21. Magda is an exempt employee at ABC Corp. She likes to work from home on the computer in her den. Can Magda claim a home office deduction?

Select an answer:

She can take the deduction if she uses the computer in the den for work more than 50% of the time.
She cannot take the deduction, because the home office deduction is not available for employees that are paid wages.
She can take the deduction because she prefers using her computer at home, even though it is not an employer requirement.
She cannot take the deduction unless she can demonstrate she only uses the den when she works from home.

22. Your tax planner suggests a tax strategy about which you are uncertain. Which strategy suggested by the planner would be tax evasion rather than lawful tax planning?

Select an answer:

suggesting that you time-shift income from an IRA or 401K to some point in the future
suggesting that you shift income from high-tax Ohio to low-tax Florida by moving your warehouse
suggesting that you change the character of the income by holding an investment for more than a year to make it a long-term capital gain
suggesting that you are not required to pay on foreign income if the foreign country does not report the income

23. What do economists consider the most important tax rate?

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the marginal tax rate
the average tax rate
the progressive tax rate
the state tax rate

24. Why does every country provide tax breaks?

Select an answer:

to discourage particular behaviors
to encourage particular behaviors
to discourage taxpayers from taking advantage of loopholes
to encourage taxpayers to avoid taxes

25. Elana, a single mother, is preparing her 1040. Why is it vital that she lists her children under age 17 on her tax return?

Select an answer:

Reporting children under age 17 on the 1040 is a tax return requirement.
Having children under age 17 determines the tax rate that will apply.
Having children under age 17 makes Elana eligible for child tax credits.
The age limit of the dependents Elana can claim on her tax return is 17.

26. ABC Global has headquarters in Belgium, which has a high corporate tax rate, and a subsidiary in the Cayman Islands, which has a zero tax rate. For the lowest tax, how should they structure operations?

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