Question

28. A tax system where income goes up and the tax rate goes down is known as: a. Regressive b. Progressive c. Proportional d. Excise

Answer 1

28,

a, Regressive

Explanation:

Regressive Tax system is a system in which the tax is imposed irrespective of how much a person earns or his income. That means the person has to pay tax at a fixed rate. When a person has high income pay a lower proportion of their overall pay compared to a low income person. In regressive tax mechanism high earing person and low earning person pays the same amount of tax. Because of this low income persons pay a higher amount of their incomes in taxes compared to high-income earners. In regressive tax payment system amount of tax paid as a percentage of income, decreases as income increases. A low earner pays more tax of their income compared to the high earner.

Example: GST, Value Added Tax (VAT), excise duty on petrol and gasoline.

Progressive tax system is a system in which the person has to pay tax according to their income. A higher income person has to pay high tax on the income compared to a low earning person.

Example: U.S. federal income tax

A proportional tax is an income tax system that levies the same percentage tax to everyone regardless of income. A proportional tax is the same for low, middle, and high-income taxpayers.

Excise taxes are primarily for businesses. An excise tax is a legislated tax on specific goods or services at purchase such as fuel, tobacco, and alcohol.

29,

d, C-Corporation

Explanation:

C-Corporation income is subject to Double Taxation. First income earned by the C-Corporations taxed at the corporate tax rates and then tax on dividends when the income of the business is distributed to the owners in the form of dividends. Tax is paid first by the corporation on its income and then again by the owners on the dividends received. As the same income is taxed at different occasions, we can say C-Corporations are subject to Double Taxation.

S-Corporations are a separate legal entity created by a state filing. The S corporation is a corporation that has filed a special election with the IRS to be treated like a partnership (or LLC) for tax purposes. Therefore, S corporations are not subject to corporate income tax. Instead, their income is subject to pass-through taxation, where the income or loss of the business is passed through the company to the owners (shareholders).

Limited liability company (LLC) is separate legal entity created by a state filing. Under state laws, LLC owners are given the liability protection that was previously afforded only to owners of a corporation (shareholders). LLCs have pass-through taxation, which means that no tax on the LLC’s income is paid at the business level

In a sole proprietorship business and the owner are legally the same. From the IRS's perspective, the business is not a taxable entity. Instead, all of the business assets and liabilities and income are treated as belonging directly to the business owner.

30,

b, W-2 Form

Explanation:

W-2 Form is the document an employer is required to send to each employee and to the Internal Revenue Service (IRS) at the end of the year to let the client know how much they earned and how much taxes are withheld each year. A W-2 Form shows the employee's annual wages and the amount of taxes withheld from their total pay. Employer is legally required to send out a W-2 form to every employee to whom they paid a salary, wage, or another form of compensation. Employer has to send W-2 form on or before Jan. 31 each year. The employee will file his income tax returns based on the W-2 Form sent by the employer.

W-4 Forms are the forms filled by employees to let employers know how much tax to withhold from their total pay based on filing status, dependents, anticipated tax credits and deductions, etc.

Form 4868 gives taxpayers a six-month extension to file federal income tax returns.

Form 2848 authorizes individuals or organizations to represent a taxpayer when appearing before the Internal Revenue Service (IRS)