Tax I Cheat Shitdoc.doc - CHAPTER 1 AN OVERVIEW OF FEDERAL TAXATION What is a Tax Exaction of the support from the government imposed not exchange

Tax I Cheat Shitdoc.doc - CHAPTER 1 AN OVERVIEW OF FEDERAL...

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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
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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
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