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Question 1 of 10
1. Question
What are the Regressive taxes?
I. They are flat tax rates that apply to all taxpayers regardless of their income and tax brackets.
II. The fact that all taxpayers pay the same percentage on a regressive tax means that wealthier taxpayers pay a lower percentage of their income.
III. It increase as the taxpayers’ incomes increase.
IV. Sales taxes is an example of regressive taxes.
Correct
Taxation falls into two main categories, regressive and progressive. Regressive taxes are flat tax rates that apply to all taxpayers regardless of their income and tax brackets. Taxes that fall under this heading include, but are not limited to, sales taxes, payroll taxes, gasoline taxes, etc. The fact that all taxpayers pay the same percentage on a regressive tax means that wealthier taxpayers pay lower percentage of their income. This comes from the necessity of lower-income taxpayers spending a greater portion of their income than they save.
Incorrect
Taxation falls into two main categories, regressive and progressive. Regressive taxes are flat tax rates that apply to all taxpayers regardless of their income and tax brackets. Taxes that fall under this heading include, but are not limited to, sales taxes, payroll taxes, gasoline taxes, etc. The fact that all taxpayers pay the same percentage on a regressive tax means that wealthier taxpayers pay lower percentage of their income. This comes from the necessity of lower-income taxpayers spending a greater portion of their income than they save.
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Question 2 of 10
2. Question
What are the examples of progressive taxes?
I. Sales Taxes.
II. Payroll Taxes.
III. Estate Taxes.
IV. Income Taxes
Correct
Alternatively, progressive taxes increase as the taxpayers’ incomes increase. This has the opposite effect of regressive taxes, which tend to be costlier to lower-income taxpayers. Examples of progressive taxes include, but are not limited to, income taxes and estate taxes.
Incorrect
Alternatively, progressive taxes increase as the taxpayers’ incomes increase. This has the opposite effect of regressive taxes, which tend to be costlier to lower-income taxpayers. Examples of progressive taxes include, but are not limited to, income taxes and estate taxes.
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Question 3 of 10
3. Question
How are capital gains or losses calculated?
Correct
Capital gains result from the sale of capital assets, such as securities or real estate, in which the price that the seller receives for the asset exceeds the price that the seller paid for the asset, or the cost basis. Capital gains or losses are usually easily computed with following formula: Cap Gain/Loss = (sales price – commission) – (adjusted cost basis).
Incorrect
Capital gains result from the sale of capital assets, such as securities or real estate, in which the price that the seller receives for the asset exceeds the price that the seller paid for the asset, or the cost basis. Capital gains or losses are usually easily computed with following formula: Cap Gain/Loss = (sales price – commission) – (adjusted cost basis).
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Question 4 of 10
4. Question
What is not true about capital gains?
I. They result from the sale of capital assets, in which the price that the seller receives for the asset exceeds the price that the seller paid for the asset, or the cost basis.
II. Capital gains will be taxed differently according to the amount of time that the investment was held.
III. A capital gain from an asset held for less than one year, is considered to be ordinary income.
IV. Long-term capital gains rates benefit from what is usually a lower tax rate than that for short-term capital gains.
Correct
Capital gains result from the sale of capital assets, such as securities or real estate, in which the price that the seller receives for the asset exceeds the price that the seller paid for the asset, or the cost basis. Capital gains or losses are usually easily computed with following formula: Cap Gain/Loss = (sales price – commission) – (adjusted cost basis). Capital gains will be taxed differently according to the amount of time that the investment was held. A short- term capital gain, or a capital gain from an asset held for less than one year, is considered to be ordinary income. This prevents traders (and others who might take advantage) from benefitting from the lower long-term capital gains rate. Long-term capital gains rates benefit from what is usually a lower tax rate than that for short-term capital gains. Currently, long-term capital gains are taxed at fifteen to twenty percent, depending on the investors’ total income.
Incorrect
Capital gains result from the sale of capital assets, such as securities or real estate, in which the price that the seller receives for the asset exceeds the price that the seller paid for the asset, or the cost basis. Capital gains or losses are usually easily computed with following formula: Cap Gain/Loss = (sales price – commission) – (adjusted cost basis). Capital gains will be taxed differently according to the amount of time that the investment was held. A short- term capital gain, or a capital gain from an asset held for less than one year, is considered to be ordinary income. This prevents traders (and others who might take advantage) from benefitting from the lower long-term capital gains rate. Long-term capital gains rates benefit from what is usually a lower tax rate than that for short-term capital gains. Currently, long-term capital gains are taxed at fifteen to twenty percent, depending on the investors’ total income.
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Question 5 of 10
5. Question
What are the features of Adjusted cost basis?
I. The cost basis (also called tax basis) of an investment is the amount that the investor paid for the investment.
II. It is used to calculate capital losses and gains.
III. The cost basis is usually represented by the purchase price of the investment.
IV. The adjusted cost basis is subtracted from the sales price to determine if a capital loss or gain occurred.
Correct
The cost basis (also called tax basis) of an investment is the amount that the investor paid for the investment. It is used to calculate capital losses and gains. The cost basis is usually represented by the purchase price of the investment. However, there are many factors that affect the cost basis and serve to reduce and increase the basis. Reinvested dividends may reduce the cost basis, thereby increasing the investor’s tax liability. Conversely, commissions paid in conjunction with an investment will serve to increase the cost basis of the investment. Once all of the adjustments to the price of the security has been made (many investments will be affected by both dividend reinvestments and commissions), the investor can determine the adjusted cost basis. The adjusted cost basis is subtracted from the sales price to determine if a capital loss or gain occurred.
Incorrect
The cost basis (also called tax basis) of an investment is the amount that the investor paid for the investment. It is used to calculate capital losses and gains. The cost basis is usually represented by the purchase price of the investment. However, there are many factors that affect the cost basis and serve to reduce and increase the basis. Reinvested dividends may reduce the cost basis, thereby increasing the investor’s tax liability. Conversely, commissions paid in conjunction with an investment will serve to increase the cost basis of the investment. Once all of the adjustments to the price of the security has been made (many investments will be affected by both dividend reinvestments and commissions), the investor can determine the adjusted cost basis. The adjusted cost basis is subtracted from the sales price to determine if a capital loss or gain occurred.
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Question 6 of 10
6. Question
What is the drawback of share identification method of accounting?
Correct
The share identification method of accounting is a system in which the investor keeps track of what he or she paid for each individual share. It is used to identify the cost of individual shares and help the investor select which shares specifically that they prefer to sell. The advantage to using this accounting method is that investors can decide if they want to have the lowest tax bill possible by selling the shares with the highest adjusted bases, or if they want to use a large capital loss to their advantage and sell the low-cost-basis shares. Possible drawbacks to this method include increased time spent on managing which shares are sold, and possible increased fees from financial service providers for the extra work required for this method.
Incorrect
The share identification method of accounting is a system in which the investor keeps track of what he or she paid for each individual share. It is used to identify the cost of individual shares and help the investor select which shares specifically that they prefer to sell. The advantage to using this accounting method is that investors can decide if they want to have the lowest tax bill possible by selling the shares with the highest adjusted bases, or if they want to use a large capital loss to their advantage and sell the low-cost-basis shares. Possible drawbacks to this method include increased time spent on managing which shares are sold, and possible increased fees from financial service providers for the extra work required for this method.
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Question 7 of 10
7. Question
Specific tax-advantaged items are added back into their taxable income to help calculate the alternative minimum tax. What ar ethose items from the following?
I. Accelerated depreciation.
II. Expenses taken in association with limited partnerships.
III. Taxes and interest paid on non-income-producing investments.
IV. Non-taxable interest on municipal bonds.
Correct
The alternative minimum tax is a tax passed by Congress to prevent high-income earners from avoiding what Congress considers to be a reasonable amount of income tax. Specific tax-advantaged items are added back into their taxable income to help calculate the alternative minimum tax. These items include, but are not limited to, accelerated depreciation, expenses taken in association with limited partnerships, taxes and interest paid on non-income-producing investments, non-taxable interest on municipal bonds, and incentive stock options.
Incorrect
The alternative minimum tax is a tax passed by Congress to prevent high-income earners from avoiding what Congress considers to be a reasonable amount of income tax. Specific tax-advantaged items are added back into their taxable income to help calculate the alternative minimum tax. These items include, but are not limited to, accelerated depreciation, expenses taken in association with limited partnerships, taxes and interest paid on non-income-producing investments, non-taxable interest on municipal bonds, and incentive stock options.
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Question 8 of 10
8. Question
What are the features of effective tax rate?
I. It is the overall rate of tax that the investor is obligated to pay to the federal government.
II. It is a progressive tax rate that increases with increased income.
III. It is a percentage of income that a taxpayer pays after each level of income tax is paid.
IV. It is the final tax bracket.
Correct
The effective tax rate is the overall rate of tax that the investor is obligated to pay to the federal government. The effective tax rate is a progressive tax rate that increases with increased income. It is a percentage of income that a taxpayer pays after each level of income tax is paid. A certain portion of income is taxed at the lowest rate, and then every dollar over that tax bracket at the next higher rate and so on until the income reaches its final bracket. The final tax bracket is the marginal tax rate. So while the investor’s marginal tax rate may be 28 percent, the effective tax rate is lower because the investor’s income that fell into the previous brackets was taxed at a lower rate.
Incorrect
The effective tax rate is the overall rate of tax that the investor is obligated to pay to the federal government. The effective tax rate is a progressive tax rate that increases with increased income. It is a percentage of income that a taxpayer pays after each level of income tax is paid. A certain portion of income is taxed at the lowest rate, and then every dollar over that tax bracket at the next higher rate and so on until the income reaches its final bracket. The final tax bracket is the marginal tax rate. So while the investor’s marginal tax rate may be 28 percent, the effective tax rate is lower because the investor’s income that fell into the previous brackets was taxed at a lower rate.
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Question 9 of 10
9. Question
What is the amount estates are exempted from?
Correct
Estates are exempt from taxation up to a certain amount that varies year to year contingent on legislation. This exemption is usually over 5 million dollars ($5,600,000 as of 2018) and precludes many U.S. estate filers from taxation.
Incorrect
Estates are exempt from taxation up to a certain amount that varies year to year contingent on legislation. This exemption is usually over 5 million dollars ($5,600,000 as of 2018) and precludes many U.S. estate filers from taxation.
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Question 10 of 10
10. Question
What stands true for taxing income of trusts?
I. Trusts are exempt from taxation up to a certain amount.
II. The tax exemption is usually over 5 million dollars and precludes many U.S. estate filers from taxation.
III. Trusts do not benefit from the same exemptions from which estates benefit.
IV. A trust is a separate entity from its creators and must file IRS form 1041 for any income it might receive.
Correct
Estates exempt from taxation up to a certain amount that varies year to year contingent on legislation. This exemption is usually over 5 million dollars ($5,600,000 as of 2018) and precludes many U.S. estate filers from taxation. Trusts do not benefit from the same exemptions from which estates benefit. A trust is a separate entity from its creators and must file IRS form 1041 for any income it might receive, as it often receives income in lieu of its creator. This prevents the creator from illegally sheltering income via the trust.
Incorrect
Estates exempt from taxation up to a certain amount that varies year to year contingent on legislation. This exemption is usually over 5 million dollars ($5,600,000 as of 2018) and precludes many U.S. estate filers from taxation. Trusts do not benefit from the same exemptions from which estates benefit. A trust is a separate entity from its creators and must file IRS form 1041 for any income it might receive, as it often receives income in lieu of its creator. This prevents the creator from illegally sheltering income via the trust.