11. The tax system

Understanding taxes

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

a. Regressive

b. 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

c. As a capital loss deducted from taxable income in the year that the loss is realized

d. As a capital loss taxed at the long-term tax rate

Suppose you want to invest $10,000. You have two options: (1) Invest in California municipal bonds with an expected rate of return of 10.00%, or (2) invest in J and K Corp.'s bonds with an expected rate of return of 15.00%. Assume that your decision is based on a tax perspective. If everything else is the same for both bonds, at what tax rate would you be indifferent between these two bonds?

a. 30.00%

b. 41.66%

c. 33.33%

d. 28.33%

If a taxpayer is liable to pay $8,950 under AMT law but $7,500 according to the regular tax system, the taxpayer will need to pay taxes according to the___________.

a. Regular tax system

b. Alternative Minimum Tax (ATM) system

The applicable tax rate for S corporations is based on the:

a. Stockholders' individual tax rates

b. Corporate tax rate