8. The tax system Aa Aa E Understanding taxes In general, is the US federal tax
ID: 2819963 • Letter: 8
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8. The tax system Aa Aa E Understanding taxes In general, is the US federal tax system progressive or regressive? O Progressive O Regressive You bought 1,000 shares of Tund Corp. stock for $75.00 per share and sold it for $77.25 per share within the same year. How will your gain or loss be treated when you file your taxes? O As a capital gain taxed at the current ordinary-income tax rate O As a capital gain taxed at the long-term tax rate Depreciation expenses directly affect a company's taxable income. An increase in depreciation expense will lead toa tax deducted From a company's earnings, thus leading to a taxable income. It will operating cash flow. of the Alternative Minimum Tax (AMT) According to a tax law established in 1969, taxpayers must pay the or regular tax. To offset taxable income in a given year, ordinary corporate operating losses can be: O Carried back for 2 years and carried forward for 20 years O Carried back for 5 years and carried forward for 10 yearsExplanation / Answer
1. In general, is the U.S tax system progressive or regressive ?
Progressive (Answer)
Explanation : The U.S tax system is progressive which means that individual income tax rises with increase in their income and refundable tax credit gives the benefit of negative income taxes with low income.
2. Capital gain taxed at the current ordinary tax rate ( Answer)
Explanation : Any capital gain which has occured within a period of 12 months would be taxed at ordinary tax rate and are generally higher than long term capital gains
3. Depreciation expense direclty affect a company's taxable income. An increase in depreciation expense will lower/decrease taxable income. It will reduce/decrease tax deducted from a company's earnings, thus leading to a higher operating cash flow.
Explanation: Revenue - other expenses - Depreciation = Net Operating Profit
Net Operating Profit - Tax = Net profit after tax.
According to the equation above depreciation when deducted from revenue reduces the Net Operating Profit which here is the taxable income. Since, net operating profit decreases the tax charged to the company also reduces. Operating cash flow on the contrary increases as we add back depreciation to net income, because depreciation is a non-cash item.
4. According to a tax law established in 1969, the tax payer must pay the higher of the Alternative Minimum Tax (AMT) or regular tax.
Explanation: This clause was added in 1969, which defines the tax payer to pay higher of the two that is AMT and regular tax. This is done particularly to prevent high income earners to take tax shelter and reduce their tax liability.
5. Carried back for 2 years and carried forward for 20 years. Answer.
Net operating losses can be carried forward for 2 years to recover past taxes paid and carried forward for 20 years to offset taxable income in future period which expries afte 20 years. These rae recorded in balance sheet as deferred tax assets.
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