Chapter3_1of3 - Chapter 3 Who pays taxes What entities are...

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Chapter 3 Who pays taxes? What entities are taxable? How is taxable income computed?
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Who is the Taxpayer? Taxable entities Individuals C Corporations Trusts Estates Flow-through entities Sole proprietorships Partnerships S Corporations Tax-exempt entities
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Who is the Taxpayer?
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Who is the taxpayer? Individuals U.S. Citizens Non U.S. Citizens (Aliens) 2 1
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Who is the taxpayer? Individuals U.S. Citizens Live here Live there U.S. citizen living/working in London earns income. Paid by her U.S. employer. Does she pay U.S. tax on her British income?
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T ypic a l U.S . C itize n L iving Abroa d
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Taxation of U.S. Citizens Living Abroad U.S. citizen works abroad Taxed on worldwide income All citizens taxed by U.S. on their income regardless of where they live or source of income Problems? Possible double taxation Relief Exclusion of foreign income Credit or deduction for foreign taxes paid Special treaty provisions may exist
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Taxation of U.S. Citizens Living Abroad Exclusion Who? Expatriates exclude up to $91,400 ( 2009 ) annually of foreign earned income if foreign resident Foreign residency test. Tax home in foreign country and Either: Bona fide resident of foreign country Physically present in foreign country 330 days in any 12 consecutive months
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Taxation of U.S. Citizens Living Abroad Credit or deduction for foreign taxes paid Credit (§ 27) Limited to tax that would have been paid on the same income in the U.S. Reduces tax $ for $ If elect earned income exclusion, foreign taxes paid on such income cannot be claimed as credit Deduction Normally itemized deduction for individual taxpayers Value based on taxpayer’s marginal rate
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Problem 3-42 T, U.S. citizen Earned income outside U.S. $20,000 Foreign tax paid $2,000 Treatment Income is from foreign investments, (a) U.S. tax $2,800 (b) U.S. tax $1,800 Income is from services
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Taxation of U.S. Citizens Living Abroad Special treaty provisions may exist
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Tax Treaties (2005) Country Signed Australia 1982 Austria 1996 Barbados 1984 Belgium 1970 Canada 1980 China 1984 Cyprus 1984 Czech Rep 1993 Denmark 1948 Denmark 2000 Egypt 1980 Estonia 1998 Finland 1989 France 1994 Germany 1989 Greece 1950 Hungary 1979 Iceland 1975 India 1989 Country Signed Indonesia 1988 Ireland 1997 Israel 1975 Italy 1984 Jamaica 1980 Japan 1971 Kazakhstan 1993 Korea 1976 Latvia 1998 Lithuania 1998 Luxembourg 1962 Mexico 1992 Morocco 1977 Netherlands 1992 New Zealand 1982 Norway 1971 Pakistan 1957 Philippines 1976 Poland 1974 Country Signed Portugal 1994 Romania 1973 Russia 1992 Slovak Rep 1993 Slovenia 1999 South Africa 1997 Spain 1990 Sweden
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This note was uploaded on 03/23/2010 for the course ACCT 402 taught by Professor Toleno during the Spring '10 term at Providence College.

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Chapter3_1of3 - Chapter 3 Who pays taxes What entities are...

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