Tax Finding Law in the Code
Slides are not numbered If you print six slides par page, read left to right, then down to next line of slides.
C11-Chp-01-Form 1040-Sound-PP-2010File-2
File 2 Income Items
This PowerPoint presentation is divided into multiple files, because adding sound causes the file size to be much bigger. This is File 2. Slides with sound show a yellow picture of a speaker. You can click on that speaker and hear some explanation from instructor.
Instructor Howard Godfrey
Professor of Accounting-UNC Charlotte
Click speaker for voice.
Please take a close look at Form 1040, your hard copy of the next slide. We must comply with the tax law when entering information on every line on the return. What law?
The tax law requires us to:
1.File annual tax returns. 2.Report income according to the law. 3.Compute taxable income by taking only deductions allowed in the law. 4.Compute tax using tax rates provided in the law. 5.Make elections on how we compute our tax liability and pay it. 6.Only take credits allowed in the law. 7.Provide additional information that is required by law. (see next slide)
Page 1. Taxpayer Info.
Form 1040. Page 1. Why file? See IRC 1(a) There is imposed a tax on taxable income...(not voluntary). 6012 Return must be filed. Note that 1 identifies the types of filing status and provides different rate schedules for each. (see next slide) 1(g) sets tax rates on certain income of children. 1(h) max. cap gains rate (hard to read) 2 def. of head of household, etc
Page 1. Filing Status
Filing Status is important See 1 Exemptions are important - See 151, 152
The preceding slide shows information about exemptions. 151 Exemption for self (&
spouse)
152 Dependents (children and other relatives, etc.) Note these are in that first group of 100 sections (61-160) items included in income, items excluded, or in this case exempt
This is a corporate tax course. 11 imposes a tax on taxable income of every corporation. Note the special tax rate in 11(b) (2) for personal service corp. 1201 has the max cap gain rate for corporations, but that rate is 35%, so it is of no benefit, unless Congress raises the regular rate above 35%.
Lets start the process of completing the Form 1040 for Pam. She earned a salary of $50,000. Recall that income tax is imposed (1) on taxable income. What is that? 63 states that taxable income is Gross income (61) less allowable deductions. (161-300) 61 Almost everything included
Tax law requires employer to give a W-2 form to employee and send copy to the IRS, so IRS will about know your income,
Please read 61 very carefully. It does define income very broadly. Now look in the second half of your book for the regulations. 1.61-1. This is the first regulation applicable to Code 61. Note that there are at least 21 of them. 1.61-21 covers those fringe benefits you have or want. But see also 132 on fringes.
Recall that Pam provided the information on the next slide about her income. I conclude that 61 and the related regulations require Pam to enter $50,000 on line 7 of Form 1040. See slide following the next slide. What if Pam received a Christmas bonus, or won a prize in a sales contest sponsored by employer?
Pam
Single-one exemption. 2010
Salary $50,000.00 Fed. income tax witheld (10,000.00) FICA withheld (7.65%) (3,825.00) N. C. Income tax withheld (2,000.00) Take home pay 34,175.00
Page 1. Income
Enter $50,000 on line 7 on Form 1040. See 61.
What if Pam also had interest income of $1,000 from Bank of America and interest income of $1,000 on State of North Carolina bonds. See 61(a)(4) and 103 Suppose Pam collected life insurance proceeds upon death of a relative. 101(a)(1). Received gift or Inheritance? 102
Page 1. Income-More
What if Pam had Duke Energy Stock with cost of $200,000 & she sold it for $210,000. See 1001. (This section applies to all entities.) Suppose the Duke stock with cost of $200,000, was sold for $50,000. (She also has a capital gain of $20,000 on sale of IBM stock.) 165, 165(f), 1211(b). Capital loss is limited to $3,000? Why does 1244 not apply?
Assume Pam owns 1,000 shares of Bank of Charlotte stock that cost $55,000. She receives a cash dividend of $5,000? 61(a)(7). 1(h)(11). 301(c), etc. Suppose instead she received a 10% stock dividend. 305(a). Basis of each new share? 307(a).
These are in the 300s, you will know these sections well. Subchapter-C.
Case for Pam She owns 1,000 shares of Bank of Charlotte stock her total cost is $55,000. What is her basis per share of the stock? ______ Suppose she receives a 10% stock dividend (100 shares). Is this a taxable distribution? 305(a). Yes or no?_____ What is the basis of each of her 1,100 shares? 307. _______
Case for Pam - Answer She owns 1,000 shares of Bank of Charlotte stock her total cost is $55,000. What is her basis per share of the stock? $55 Suppose she receives a 10% stock dividend (100 shares). Is this a taxable distribution? 305(a). Yes or no? No What is the basis of each of her 1,100 shares? 307. $50
Now, please move to File 3 of this series that covers Adjusted Gross Income.
End of File 2