1.

Tax first existed in the forms of tariffs and excise taxes; it provided revenue for the government for
many years. The ratification of the 16th amendment gave Congress the right to collect income taxes.

2. Taxes can pay for social services, financial aids and national defense.

3. Tax evasion is the failure to pay legally due taxes while tax avoidance is the legal means of decreasing
one’s tax bills.

4. Direct taxes are taxes that are paid directly to the government, an example is property taxes. Indirect
taxes are taxes that can be shifted by a person or a business, and example is payroll taxes.

5. The 3 basic tax structures are; progressive (taxes higher income more than lower income), regressive
(taxes lower income more than higher income), proportional (all taxed same amount regardless of
income).

6. From W2 reports amount of federal, state, and other taxes withheld. Form 1099 is for independent
contractors and those that are self-employed.

7. Standard deduction is a fixed dollar amount that reduces the income you are taxed on; based on filing
status. Itemized deduction is tracking an individual item that reduces the income you are taxed on. The
most popular form of deduction here in the US is the standard deduction.

8. To calculate tax income, you have to know your gross income from forms W-2 and 1099. You then
calculate your adjusted gross income by subtracting adjustments, allowable exemptions, and deductions.

9. Audits are a detailed examination of taxpayer’s tax returns. If you are being audited you will be
notified by mail or telephone. Two rights that a taxpayer have are; a right to representation, by oneself
or an authorized representative, and a right to privacy and confidentiality about tax matters.

10. The 3 types of audit findings are no change, agreed meaning that the tax payer understands and
agrees with the changes, and disagree meaning that the tax payer understands and disagree with the
changes.