2.4 Comprehension

2.4.1 Answer the questions using the active vocabulary and Unit 2 Glossary.

1. What are individuals and corporations required to compute?

2. Why do you think overpaying of financial taxes is undesirable?

3. What does tax accounting involve?

4. What do you know about Internal Revenue Code?

5. What entities does it provide regulations for?

6. What is its implementing agency?

7. What is the difference between the progressive tax, regressive tax and proportional tax?

8. Why does the progressive tax reduce tax incidence?

9. What three types of government levy taxes in the US?

10. What is a taxable income?

11. What is a deduction? How does it encourage certain kinds of economic behavior? Give your own examples.

12. Why is the corporate income taxed twice?

13. What is the major aim of a business’s tax accounting policy?

14. Why is the postponement of the tax liability an advantage for the business?

15. Describe the accounting procedure for computing income taxes.

2.4.3 Mark these statements t(true) or f(false) according to the information in the Text and Unit 2 Glossary. If they are false say why.

1. Only individual citizens, not businesses, pay income taxes in the US.

2. The Federal government is the only level of government in the United States that can levy a tax.

3. Many larger corporations in the US pay more than 50% of their net income to federal and state governments in the form of taxes.

4. No form of organization or method of handling transactions can give a tax advantage.

5. A corporation enjoys certain nontax advantages over individual proprietorships or partnerships, such as limited liability, continuity of existence, and ease of raising capital.

6. The owners of individual proprietorships and partnerships show income from their businesses on their individual tax returns.

7. In a progressive income tax, all earnings are taxed at the same percentage rate.

8. Corporations may claim a tax deduction for dividends they pay out to stockholders.

9. There is no tax advantage to a small-business type of corporation.

10. There is never any accounting problem that results from differences in the amount of taxable income and the amount reported on financial statements.

11. Capital gain is the profit resulting from the sale of a capital asset such as land or capital stock.

12. The Tax Code provides regulations for individuals, businesses, government entities, retirement tax exempt community.

13. Individuals and corporations may be taxable on undistributed income. 

14. Partnerships and their partners are taxed on their shares of partnership income.

15. Capital losses reduce taxable income only to the extent of gains.

2.5 Language practice

2.5.1 Match the English terms in the left-hand column with the definition in the right-hand column.

1	Tax accounting	A	A tax on the sale or use of specific products or transactions.
2	Accrual method of accounting	B	An event that affects the resources of a business.
3	Common law	C	Income tax rate paid on the last dollar of income earned.
4	Deferred expense	D	Levying of tax by two or more jurisdictions on the same declared income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes).
5	Dependency exemption	E	Cash received that the business has not earned yet. It is a liability until earned because if the business does not earn it the business will have to pay it back.
6	Direct tax	F	Balance Sheet
7	Excise tax	G	A system whereby revenue is recognized and recorded when earned (rather than when received) and expenses are recognized and recorded when incurred (rather than when paid).
8	Marginal tax rate	H	A failure to pay or a deliberate underpayment of taxes.
9	Sales tax	I	A tax by which the tax rate increases as the taxable base amount increases.
10	Social security tax	J	A tax that cannot be shifted to others, such as the federal income tax.
11	Deferred revenues	K	Law made by judges in individual cases, rather than by the legislature.
12	Tax evasion	L	Variable tax dollars that you can subtract, or deduct, from your gross income.
13	Transaction	M	Amount that taxpayers can claim for their eligible dependents.
14	Deduction	N	A prepayment on an expense, recorded as an asset until such time as the expense actually occurs. It is an asset because you have a right to a refund unless you incur the expense.
15	Double taxation	O	Accounting process that focuses on tax issues.
16	Statement of financial position	P	Provides benefits for retired workers and their dependents as well as for the disabled and their dependents.
17	Progressive tax	Q	A tax on retail products based on a set percentage of retail cost.