Engler Fall 2000-Fed Tax

Engler Fall 2000-Fed Tax - Federal Income Tax 2000...

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Federal Income Tax – 2000 1 FEDERAL TAX - ENGLER I. Introduction A. 2 fundamental Questions 1. What is the treatment of a particular item? 2. What should be the treatment under an ideal tax system? B. Critique of Tax Systems 1. 3 Basic Areas a. Administration/ Complexity b. Fairness 1. must look at “ability to pay 2. someone w/ a higher income has a greater ability to pay c. Economic Consequences/ Effects 1. by introducing the tax system, what will happen to people’s behavior -Progressive Rate Structure = marginal rates as taxable income increases, the tax rate increases different levels of tax - income is reported in the year it is made. Why? 1. withholding tax system withholding obligation on employer (take taxes out of salary) 2. obligation with respect to the year for self employed people why are there deviations from an ideal tax code? - administrative reasons - to encourage particular behavior 2 main methods of accounting 1. cash method report income when cash is received 2. accrual method report income when service is performed not when cash is received -time value of money concept (from Handout #1) HUGE ISSUE UNDER TAX SYSTEM there is an argument that the B earned the income in 2000 and B has control of when to realize income and therefore it can be reported when he chooses = realization requirement concern = it may look like there is no big deal b/c both have the same amount of income www.swapnotes.com
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Federal Income Tax – 2000 2 really, the difference is A has to pay 10k in taxes in 2000 while in contrast B does not have to pay 10K in taxes until the year 2001 while A pays $10k in 2000, B can set aside an amount less than 10k and will have enough to pay the $10k by 2001 in effect by pushing the tax payment from 2000 to 2001, B is paying less in taxes look to present value chart (p 42) by deferring the tax from to the next, B’s tax liability has been reduced to $9,520 assuming one year at a 5% return, B would only have to give $.952 for every dollar he owes B. Some Characteristics of Income Haig-Simons definition of income C +/- Δ W Reg. §1.61-1(a) = Gross income includes income realized in any form, whether in money, property to services” Reg. §1.61-2(d)1 = “If services are paid for in property, the FMV of the property taken in payment must be included in income as compensation” 1. Noncash Benefits a. Meals and Lodging, Valuation Benaglia v. Comm H = employer convenience so you don’t include the value of the meals and lodging H works for hotel in HI, gets room and board, included income? general rule = include objective fair market value for property received for services Benaglia = exception what about staying in hotel 365 days a yr. there is a benefit to the employer therefore including FMV is not necessary
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This note was uploaded on 02/14/2008 for the course LAW 7601 taught by Professor Cunnigham during the Fall '03 term at Yeshiva.

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Engler Fall 2000-Fed Tax - Federal Income Tax 2000...

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