Taxation Law (MCQs)

What is the primary purpose of taxation?
a) To provide subsidies
b) To raise revenue for government expenditure
c) To control inflation
d) To promote foreign trade
Which of the following is considered a direct tax?
a) Sales tax
b) Income tax
c) Value-added tax (VAT)
d) Excise duty
What does “tax evasion” refer to?
a) Legal tax reduction
b) Illegal non-payment or underpayment of taxes
c) Paying taxes on time
d) Claiming tax credits
What is the main function of the Internal Revenue Service (IRS) in the United States?
a) To draft tax laws
b) To administer and enforce federal tax laws
c) To provide tax advice
d) To collect state taxes
Which tax is imposed on the transfer of property upon the death of the owner?
a) Income tax
b) Sales tax
c) Estate tax
d) Gift tax
What is a “progressive tax”?
a) A flat tax rate for all income levels
b) A tax that increases as income increases
c) A tax on consumption
d) A tax on wealth
Which of the following is an example of an indirect tax?
a) Corporate tax
b) Goods and Services Tax (GST)
c) Property tax
d) Personal income tax
Which of the following expenses is generally not tax-deductible?
a) Business expenses
b) Personal living expenses
c) Charitable contributions
d) Mortgage interest
What is the tax rate applied to an individual’s last dollar of income called?
a) Average tax rate
b) Marginal tax rate
c) Effective tax rate
d) Flat tax rate
Which of the following is NOT a characteristic of a good tax system?
a) Equity
b) Certainty
c) Complexity
d) Convenience
What type of tax is levied on the value added at each stage of production or distribution?
a) Income tax
b) Value-added tax (VAT)
c) Capital gains tax
d) Property tax
In taxation, what does “deduction” refer to?
a) A penalty for underpayment
b) An amount subtracted from gross income to reduce taxable income
c) A tax credit
d) A surcharge on taxes owed
What is “double taxation”?
a) Taxing the same income twice by different jurisdictions
b) Taxing the same income by both corporate and personal tax
c) A method of tax deduction
d) Taxing based on different tax rates
Which of the following is true about tax credits?
a) They reduce taxable income
b) They reduce the amount of tax owed dollar for dollar
c) They are not refundable
d) They are only available to businesses
What does the term “tax liability” refer to?
a) The total income of a taxpayer
b) The total amount of tax owed by a taxpayer
c) The tax refund received
d) The taxable income
Which of the following taxes is generally based on property ownership?
a) Income tax
b) Property tax
c) Sales tax
d) Corporate tax
What is the main purpose of tax incentives?
a) To increase tax rates
b) To encourage specific behaviors or activities
c) To penalize certain actions
d) To simplify the tax code
Which of the following entities is usually exempt from income tax?
a) Corporations
b) Individuals
c) Non-profit organizations
d) Partnerships
What does “withholding tax” refer to?
a) A tax on property transfers
b) A tax deducted at the source from wages or payments
c) A penalty for late tax payments
d) A tax on capital gains
What is the capital gains tax applied to?
a) Income earned from wages
b) Profit from the sale of an asset
c) Sales of goods and services
d) Inheritance received
Which of the following is a feature of a “flat tax”?
a) Varies based on income level
b) A single tax rate applied to all income levels
c) Multiple rates for different income brackets
d) Deductions are not allowed
What is the primary purpose of a tax return?
a) To notify the government of income
b) To report income, deductions, and tax owed or refund due
c) To apply for tax credits
d) To request an extension for tax payment
Which type of tax is imposed on the profits of corporations?
a) Corporate income tax
b) Personal income tax
c) Sales tax
d) Capital gains tax
What is the common deadline for individual income tax returns in the United States?
a) March 15
b) April 15
c) June 30
d) December 31
Which of the following taxes is specifically related to the sale of goods and services?
a) Income tax
b) Sales tax
c) Property tax
d) Estate tax
What is “tax avoidance”?
a) Illegal non-payment of taxes
b) Legal strategies to minimize tax liability
c) Failure to file a tax return
d) Concealing income from tax authorities
What does “transfer pricing” refer to in taxation?
a) The process of valuing real estate
b) The pricing of transactions between related entities to allocate income
c) Taxing foreign income
d) Determining the value of stock options
Which of the following terms describes a tax that is based on the value of a transaction?
a) Income tax
b) Property tax
c) Excise tax
d) Corporate tax
What is the legal principle that prohibits taxation without representation?
a) Due process
b) No taxation without representation
c) Equal protection
d) Taxpayer’s rights
Which of the following is an example of a tax shelter?
a) Paying income tax
b) Investing in certain retirement accounts to defer taxes
c) Filing a tax return
d) Paying property tax

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