Chapter 21

Chapter 21 - GOALS FOR FEBRUARY 20 Taxes in Real Life...

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GOALS FOR FEBRUARY 20 Taxes in Real Life Overview Presentations Homework Questions
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Taxes in Real Life Crack Tax in New York Drug Tax Stamp In Nebraska
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Overview Chapter 21 – Capital Gains and Losses Complicated Enough? Chapter 24 – Installment Sales Too many rules Chapter 24 – Property for Services Real life (at least for those lucky enough to work for companies who give these kinds of rewards)
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Chapter 21 – Capital Gains and Losses Why this chapter when it is so far into the book? Why is there a distinction between capital income and ordinary income? The text is quite confusing and tries to give us too many rules at one time; but it provides an excellent example of how the Code can sometimes work and be very complex.
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Chapter 21 – Capital Gains and Losses Main idea of the introduction section – Congress tends to change its mind. Also, there is a distinction in treatment of capital vs ordinary income. The authors are not very funny.
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Chapter 21 – Capital Gains and Losses To have a capital gain (or loss) 3 elements MUST be present: Transaction must involve a capital asset as defined in section (actually as not defined) in 1221. There must be a “sale or exchange” Must determine the length of time the property was held.
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Chapter 21 – Capital Gains and Losses Einstein’s Theory (no, not relativity): If you can remember where to look something up, why memorize it? This mainly applied to his phone number, but applies equally as well here to all the rules, past and present, regarding taxability of capital gains.
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Mechanics of Capital Gains and Losses Let’s get simple (after you determine whether the gain is short or long term): Step 1: Net LT gains with LT losses Step 2: Net ST gains with ST losses Step 3: If both types are the same net result, STOP! Your only remaining step is where (and how much) to put on your tax forms.
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Mechanics of Capital Gains and Losses Step 4A: Net LT gains with ST losses Net gain = LT Net loss = ST Step 4B: Net LT losses with ST gains Net gain = ST Net loss = LT
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Mechanics of Capital Gains and Losses Net LT Gains – get favorable tax treatment of a reduced tax rate (currently at 15%, generally) Net LT Losses – deduct against ordinary income up to a maximum of $3,000. Remainder is carried over to subsequent tax years as LT loss.
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Mechanics of Capital Gains and Losses Net ST Gains – taxable as ordinary income (regular tax rates) Net ST Losses – deduct against ordinary income up to maximum of $3,000. Remainder is carried over to subsequent tax years as ST loss.
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the Same Year If Steps 1 and 2 result in both LT and ST losses, what do you do? Deduct up to $3,000 of losses
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This note was uploaded on 09/27/2008 for the course BUS 1000 taught by Professor Professor during the Spring '08 term at Cal Poly.

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Chapter 21 - GOALS FOR FEBRUARY 20 Taxes in Real Life...

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