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Tax Strategies Flashcards

7 cards from real CPP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Tax Strategies flashcards as text

  1. Under a value-added tax (VAT) system, how does a registered business typically recover VAT paid on its purchases?

    Answer: By claiming input tax credits against output VAT collected on sales

    Registered businesses offset input VAT on purchases against output VAT charged on their sales.

  2. Related companies in different countries buy and sell goods with each other. Which principle governs how the prices should be set for tax purposes?

    Answer: Arm's length principle

    Transfer prices between related parties must reflect what unrelated parties would agree to in comparable circumstances.

  3. What does the 'first sale rule' let a U.S. importer do in a multi-tiered transaction?

    Answer: Base customs value on the price from the manufacturer to the middleman rather than the higher price paid by the importer

    The first sale rule allows dutiable value to be based on an earlier, lower-priced bona fide sale for export to the U.S.

  4. Which federal provision lets a business deduct the full cost of qualifying equipment in the year it is placed in service, up to an annual limit?

    Answer: Section 179

    Section 179 allows immediate expensing of qualifying property up to a dollar limit instead of depreciating it over time.

  5. What is the standard U.S. tax depreciation system used for most tangible business property?

    Answer: MACRS

    The Modified Accelerated Cost Recovery System (MACRS) is the main tax depreciation method for most business assets.

  6. A state agency buys office furniture from a vendor. What usually allows the agency to avoid sales tax?

    Answer: Providing a government exemption certificate

    Government entities typically provide an exemption certificate, which the vendor keeps on file to justify not collecting tax.

  7. What is the risk to a vendor that fails to obtain a valid exemption certificate from a customer claiming exemption?

    Answer: The vendor may be held liable for the uncollected sales tax on audit

    Without a properly completed certificate, auditors can assess the uncollected tax against the seller.