Federal Taxation Chapter 1 Essay

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Chapter 1: Discussion Questions 1. a. By becoming a dealer, John’s capital gains and losses convert to ordinary income and losses. b. By establishing her own CPA firm, Theresa has become self-employed and now she has to make quarterly payments on income and pay self-employment taxes. c. After purchasing a personal residence, Paul probably will no longer claim the standard deduction on the income tax return. Due to mortgage interest and property tax deductions he will itemize his deductions on Schedule A. 5. For wage earners, the tax system requires employers to withhold for taxes a specified portion of an employee’s wages. Persons with income form other than wages have to make quarterly payments to the IRS for estimated taxes due for the year.…show more content…
A tax is proportional if the rate of tax remains constant for any given income level (excise taxes, general sales taxes, employment taxes). A tax is progressive if a higher rate of tax applies as the tax base increases (Federal income tax, Federal gift and estate taxes) 9. If looking from a long-term period perspective, the Baker Motors would be the best offer to accept. The car dealership is subject to higher tax rates. 17. Maybe Earl bought the computer in another state through the Internet. In this case, he didn’t have to pay the sales tax. 23. a. ‘’Piggyback’’ means making use, for state income tax purposes, of what was done for federal income tax purposes. By “decoupling” a state doesn’t allow its taxpayers the same deductions for state purposes that are allowed for Federal purposes. b. A diminishing minority of states allow a deduction for Federal income taxes. c. Most states allow their residents a tax credit for income taxes paid to other states. 29. a. FICA offers some measure of retirement security, and FUTA provides a modest source of income in the event of loss of

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