Taxes_Chapter_01_PPT

Taxes_Chapter_01_PPT - Income Tax Fundamentals 2010 edition...

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Income Tax Fundamentals 2010 edition Gerald E. Whittenburg Martha Altus-Buller 2010 Cengage Learning 1
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Since 1913 - adoption of 16 th amendment - the constitutionality of income tax has never been questioned Income taxes serve a multitude of purposes 2010 Cengage Learning 2
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Raise revenue Tool for social and economic policies Social policy encourages desirable activities and discourages undesirable activities i Credits for investment in solar and wind energy i Can deduct charitable contributions i Credits for higher education expenses Economic policy as manifested by fiscal policy i Encourage investment in capital assets through depreciation Both economic and social o Exclude gain on sale of personal residence up to $250,000 ($500,000 if married) 2010 Cengage Learning 3
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Individual Taxable income includes wages, salary, self- employment earnings, rent, interest and dividends An individual may file simplest tax form qualified for i 1040EZ i 1040A i 1040 If error made on one of the three above forms, can amend with a 1040X 2010 Cengage Learning 4 See next slide
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Individual 1040EZ o Single or Married Filing Jointly (MFJ) i Must not be 65 or older and/or blind i Must not claim any dependents i Taxable income must be under $100,000 i Only wages, salaries or unemployment and not more than $1,500 taxable interest income i Not received advance earned income credit 2010 Cengage Learning 5
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Individual (continued) 1040A o Generally used by taxpayers who are not self-employed and don’t itemize deductions 1040 o If taxpayer doesn’t qualify to use 1040EZ or 1040A should complete a 1040 with possible schedules attached: i Schedule A to itemize deductions i Schedule B to report dividends/interest income > $1500 i Schedule C to report trade/business income i Schedule D to report capital gains/losses i Schedule E to report rental/royalty income i Schedule F to report farm/ranch activities 2010 Cengage Learning 6
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Corporations Tax rate schedule found on page 1-3 1120 or 1120S - corporations that elect S Corporation status i Don’t pay regular corporate income taxes i Instead, pass through items of income or loss to shareholders Partnerships Reporting entity, not taxable entity 1065 – reports income/loss and allocation to partners i Pass through items of income or loss to partners 2010 Cengage Learning 7
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This formula follows Form 1040 Gross Income less: Deductions for Adjusted Gross Income (AGI) AGI less: Greater of Itemized or Standard Deduction less: Exemptions Taxable Income times: Tax Rate (using tax tables or rate schedules) Gross Tax Liability less: Tax Credits and Prepayments Tax Due or Refund 2010 Cengage Learning 8
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9 2009 standard deduction Single $ 5,700 Married Filing Joint (MFJ) $11,400 Qualifying Widow(er) $11,400 also known as Surviving Spouse Head of Household (HOH) $ 8,350 Married Filing Separate (MFS) $ 5,700 *Taxpayers 65 or older and/or blind get an additional amount
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Taxes_Chapter_01_PPT - Income Tax Fundamentals 2010 edition...

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