Ch. 1 Lecture.pptx - 1 Chapter 1 Intro to tax Instructed by...

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Chapter 1: Intro to tax Instructed by: Kelly Wentland 1
Outline What is a tax? How to calculate a tax Two forms of tax Three types of tax rates Three types of tax structures Types of taxes Five criteria for evaluating tax systems 2
What is a tax? Three components of the definition in your book: A payment that is: Required (is not voluntary), Imposed by a government agency, and Is not tied directly to a benefit that is only for that taxpayer 3
How to calculate a tax To calculate a tax, a taxpayer must know: Tax Rate: level of taxes imposed on the tax base and is usually expressed as a percentage Tax Base: defines what is actually taxed and is usually expressed in monetary terms Tax = Tax base x Tax rate 4
Three types of tax rates used Average tax rate Effective tax rate Marginal tax rate To differentiate between these three types of tax rates, you want to ask yourself: What is in the numerator used? What is the denominator used? 5
1) Average tax rate What is this? 6
2) Effective tax rate What is this? 7
What is the difference between the average tax rate and the effective tax rate ?
Different types of income Accounting income : based on GAAP Total or economic income : Taxable income : based on tax codes and regulations: Examples of how taxable income differs from accounting income : A company cannot reduce its taxable income by including fines or penalties it pays to the government. But, fines or penalties are considered when calculating accounting income. Examples of how taxable and accounting income differ from economic income : Accounting and taxable income do not include opportunity costs . 8
Marginal tax rate What is this?

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