Chapter1_Lecture - Chapter 1 Introduction to Taxation Tax...

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Chapter 1 Introduction to Taxation Tax Structure Tax base: amount to which the tax rate is applied Tax rates: applied to the tax base to determine the tax liability o May be proportional, progressive, or regressive Incidence of tax: degree to which the total tax burden is shared by taxpayers Tax Structure Examples: Major Types of Taxes Transaction Taxes Employment Taxes Death Taxes Gift Taxes Property Taxes Income Taxes Other U.S. Taxes Excise Taxes Imposed at the Federal, state, and local levels Restricted to specific items Examples: gasoline, tobacco, liquor Declined in relative importance until recently Example-two types of excise taxes at the local level have recently become increasingly popular Hotel occupancy tax Rental car surcharge Tax is levied on visitors who cannot vote and used to fund special projects General Sales Taxes Currently jurisdiction of states and localities States that impose sales taxes also charge a use tax on items bought in other states but used in their jurisdiction States without sales or use taxes are Alaska, Delaware, Montana, New Hampshire, and Oregon Employment Taxes FICA taxes o Paid by both an employee and employer o In 2009, Social Security rate is 6.2% on a maximum of $106,800 of wages, and Medicare rate is 1.45% on all wages Income $10 $20 $30 Proportional Tax $3 (30%) $6 (30%) $ 9 (30%) Progressive Tax $3 (30%) $7 (35%) $12 (40%)
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A spouse employed by another spouse is subject to FICA Children under the age of 18 who are employed in parent’s unincorporated trade or business are exempt from FICA FICA taxes o Sole proprietors and independent contractors may also be subject to Social Security taxes Known as the self-employment tax Rates are 12.4% for Social Security and 2.9% for Medicare Twice the rates applicable to an employee The tax is imposed on net self-employment income up to a base amount of $106,800 for 2009 FUTA (unemployment) taxes o Provides funds for state unemployment benefits o In 2009, rate is 6.2% on first $7,000 of wages for each employee o Administered jointly by states & Fed govt. Credit is allowed (up to 5.4%) for FUTA paid to the state o Tax is paid by employer Death Taxes Tax on the right to transfer property or to receive property upon the death of the owner o If imposed on right to pass property at death Classified as an estate tax o If imposed on right to receive property from a decedent Classified as an inheritance tax The value of the property transferred provides the base for determining the amount of the death tax The Federal government imposes only an estate tax Many state governments levy inheritance taxes , estate taxes , or both Federal Estate Tax Federal estate tax is on the right to pass property to heirs o Gross estate includes FMV of property decedent owned at time of death Also includes property interests, such as life insurance proceeds paid to the
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Chapter1_Lecture - Chapter 1 Introduction to Taxation Tax...

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