CHAPTER 1: AN OVERVIEW OF FEDERAL TAXATION
What is a Tax? Exaction of the support from the government, imposed not exchange revenue
The Characteristics of a Tax:1)no relationship between how much you pay and how much you benefit from
government.2)predetermined material 3) Taxed levied on a recurring or predictable basis. 4)Distinguished from regulation
or penalties.
B. History of U.S. Taxation
1.
Constitutional Problem 2. Sixteenth Amendment (1913)
3.
Taxes as a Source of Revenue – Individual43% Social insurance receipt 32%>Corperate income tax 13% Other
5% Excise Tax3.2%Estate and gift taxes0.06%
C. Key Tax Terms --Rate Structures: Proportional, Progressive, or Regressive
0-9325
0-10% Tax
Eg. Tax income 100,000
Total income 150,000
9325-91900
5226.25+25%
Tax=118713.75+2268=20981.75
Deducible is 1000, save 281
91900-191650
18713.75+28%
Effective rate=
20981.75/100000=21%
Average
rate=20981.75/150000=14%
Average Tax Rate=Tax/taxable income b.
Effective Tax Rate=/total economic income
D. Major Types of Taxes
1.
Income Taxes a. Federal b.State( 7 state without state income tax: Texas, Washington, Nevada, Alaska, South
Dakota, Wyowing)
2.
Estate and Gift Taxes (annual exclusion$14000,file gift tax return)
3. Employment Taxes
a. FICA Taxes:
Social Security and Medicare Tax
i.
Employee and Employer --- Equal Contributions
SS Tax = 6.2% x 1
st
$127,200 of Earned Income/Year (2017)
Medicare Tax = 1.45% x ALL Earned Income per Year
ii.
Self-employed --- 12.4% & 2.9% x Self-Employment Income
Self-Employment Income = Net Profit x 92.35%
iii. Additional
Medicare Tax Rate on Earned Income Amount in Excess of $200,000 ($250,000 MFJ)
is 0.9% for Employees and Self-Employed.
Applies Only to Employee Share, Not Employer
Share.
Example:W2=$70,000
Net Income from Self-Employment: $80,000
Self-Employment Tax:
Social Security
Medicare
1
st
127200-----127,200-70,000=57200
Self-Employment Income = Net Profit x 92.35%
57200X0.124=7093
73880=80,000 X 92.35%
then 73800X0.029=2142.52
Total =7093+2142.52=9236
b.
FUTA and SUTA Taxes --- Employer Contributions Only
4. Excise Taxes(Cigarettes,Gasoline,Liquor)
5.
Other Taxes: Sales & Use Taxes (Eg. Buy car from other state ), Property Taxes, Franchise Taxes
E. Goals of Taxation--Economic
、
Social
、
Equity
、
Administrative
、
Political
CHAPTER 2 TAX PRACTICE AND RESEARCH
Part 1: Tax Practice
A. Terminology
Tax Compliance
1.
Tax Return Preparer --- Only Requirement: Must Obtain PTIN from IRS (free – no fee to obtain preparer tax
identification number)
2.
Tax Litigation-when you want to sue IRS Tax Professionals: CPAs, Tax Attorneys, EAs (Enrolled Agents)
1
Taxpayer Penalties
Accuracy related or negligence
20% X understatement of tax due to negligence
1)
Regular negligence
Defense: reasonable basis
2)
Substantia negligence --Understated
Larger
of
$5000
or
10% correct tax
Defense: Substantiated Authority if Undisclosed
Reasonable Basis if Disclosed
Tax Preparer Penalty
Negligence
Substantial: greater of $1000
or
50% tax prep fee
Defense: Substantiated Authority if Undisclosed
Reasonable Basis if Disclosed
Part 2: Tax Research
A. Authoritative Sources of Tax Law
1. Legislative:
Statutory Law (Internal Revenue Code or IRC, Tax Treaties, ...)
2.
Official Interpretations of Tax Law
a.
Executive:
IRS/Treasury Dept. Interpretations
b.
Judicial:
Court Cases
B. The making of Tax Law
