Question

In general, is the U.S. federal tax system progressive or regressive?

(a)Regressive

(a)Progressive

You bought 1,000 shares of Tund Corp. stock for $68.12 per share and sold it for $90.03 per share after a few years. How will your gain or loss be treated when you file your taxes?

(a) As a capital gain taxed at the long-term tax rate

(b)As a capital gain taxed at the current ordinary-income tax rate

Depreciation expenses directly affect a company’s taxable income. An increase in depreciation expense will lead to a .............. taxable income. It will........... tax deducted from a company’s earnings, thus leading to a ................ operating cash flow.

According to a tax law established in 1969, taxpayers are............... to pay the greater of the Alternative Minimum Tax (AMT) liabilityor the regular tax liability.

Which of the following cash outflows cannot be deducted from the operating income to derive the taxable income?

(a)Interest paid

(a)Dividends paid

Answer 1

1- (a) Progressive.

2- (a) As a capital gain taxed at the long-term tax rate.

3- decreased, reduce, greater

4- required

5- Dividends paid.

Step-by-step explanation:

1- In the U.S. federal income taxes are progressive. They take a larger share of income as the income grows. People with higher incomes will pay a large percentage of their income as federal tax and people with lower incomes will pay a lower percentage of income.

2- The share are purchased and sold after few years. The investment is kept for more than a year than its capital gains will be taxed at the long-term tax rate.

3- Depreciation expense is considered as a tax shield. The larger the depreciation expense, the lower will be the taxable income.

4- The tax payers are liable to pay greater if AMT liability or regular tax liability under tax law 1969.

5- Dividends paid are not deducted to derive taxable income. Interest paid is deducted from operating income to calculate taxable income.