State Whether Each of the Following Payments Is a Tax

7853 words 32 pages
41. State whether each of the following payments is a tax. Explain your answers.

a. To incorporate his business, Alex pays the state of Texas a \$2,000 incorporation fee.

The incorporation fee is not a tax. Alex receives a direct benefit from the payment of the fee - the privilege of operating his business as a corporation

b. The city paves a road and assesses each property owner on the road \$4,000 for his or her share of the cost.

The payment of the assessment is not a tax. The assessment is a property improvement. Only the owners of the property benefit from the assessment. The assessment is a charge to reimburse the county government for the cost of paving the road that provides a direct benefit to each owner’s
Total tax on \$95,000 for a corporation: 2009 corporate rate schedule

Taxable Income \$ 95,000
Tax on 75,000 \$13,750
Excess \$ 20,000
Taxed at Marginal tax rate x 34% 6,800
Total Tax \$20,550

average tax rate = 21.63% = \$20,550 tax \$95,000 taxable income

45. Rory earns 60,000 per year as a college professor. Latesia is a marketing executive with a salary of \$120,000. With respect to the Social Security tax, what are Rory and Latesia's a. Total taxes?

Rory's salary is under the OASDI Social Security base limit. Therefore, he pays the combined 7.65% rate on his full salary, resulting in a tax of \$4,590:

\$60,000 x 7.65% = \$4,590

Latesia's salary is over the OASDI base amount. Therefore, she pays the maximum OASDI tax and the 1.45% MHI tax on all her income, a total Social Security tax of \$8,362:

OASDI Tax \$106,800 x 6.20% = \$ 6,622
MHI Tax \$120,000 x 1.45% = 1,740
Total Tax \$ 8,362

b. Marginal tax rates?

The marginal tax rate is the rate of tax that is paid on the next dollar of income subject to the tax. Because Rory is under the base amount, any subsequent income earned up to the \$106,800 OASDI base amount is subject to tax at 7.65%. Therefore, his marginal tax rate is 7.65%.

Latesia has paid the maximum OASDI tax on her salary. Therefore,

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