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Unformatted text preview: An Introduction to Taxation
Emphasis on Federal Tax Basic Terms Tax Rate X Tax Base Tax Tax Rates Marginal Tax Rate Average Tax Rate Effective Tax Rate used by economists T has a tax base of $30,000 and pays a tax of $2,500 on the first $25,000 and $750 on the next $5,000. T has a marginal tax rate of a) 10% b) 15% c) 20% d) 10.83% Tax Rate Structures Progressive: Income and Estate/Gift tax Neutral: Sales tax, medicare Regressive: FICA, FUTA, SUTA Adam Smith and Equity Wealth of Nations (1776) "The subjects of every state ought to contribute towards the support o the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which ther respectively enjoy under the protection of the state." The FICA tax rate is best considered: a) Proportional b) Progressive c) Regressive d) Neutral Tax Bases Property Taxes: Real estate, Personal property: Ad valorem tax Sales & use taxes Excise ("sin") taxes & customs duties: gasoline, tobacco Estate & Gift taxes: lifetime taxable gifts Employment taxes Franchise Taxes Income taxes Estate & Gift Tax Based on value of asset transferred May gift up to exempt amount (E.g. $13,000 per recipient per year in 2009; $12,000 in 2008) taxfree, up to a lifetime amount of $1 Million in gifts. Only large gifts taxed (amount over exemption) Gift tax may be delayed by subtracting taxable gift from estate exclusion Estate tax
$3,500,000 of estates (FMV of net assets minus funeral expenses and charitable contributions and transfers to spouse and executive fees; also add gifts you paid taxes on, but add the tax paid on those gifts to credit) exempt in 20062008 If the 1st $3.5Mil were not exempt, the tax on that amount would be $780,800: this is normally "credit allowed," but if you paid gift taxes already, increase credit by amount of gift tax pd. Employment Taxes Employee v. contractor Medicare is part of "FICA" and is 1.45% of all wages/employee/year; pd by both employer and employee Amount is 2.35% on singles w/ $200,000 in wages; $250,000 MFJ beginning in 2013. Social Security is part of "FICA" and is 6.2% of first $106,800/employee/year (2009); base indexed for inflation; tax pd by both Unemployment Taxes Federal Unemployment Tax Act (FUTA) is tax of .8% (=.008) x first $7,000 wages/employee/year; pd by employer SUTA is 3.2% (varies w/experience rate) x first $9,000 wages/employee/year in TX; pd by employer Employer Responsibility for Health Care Large employer must offer fulltime employees and dependents minimum health care coverage of face penalty of $2,000 per employee, prorated monthly. Effective in 2014. Franchise Tax Just changed effective 2006 tax year! Close to an income tax, but exempts small companies. Similar is occupation taxes CPAs, pay up! Income Taxes See inside front cover of book: will cover ch 2 end Income Tax Trends Toward more third party reporting 1099 paid by companies to individuals making more than $600. Beginning 2012, must report payments to corporations too. Other 1099s for interest, dividends 1099s for stock sales expanded to include basis reporting. Tax Principles Ability to pay will dominate economic gain Transfers to corps (351) and partnerships (702) Gain on foreclosures Gain on casualty Presidentially declared disaster area Likekind exchanges, no cash received Lessee improvements Index to inflation Examples of Tax Expediency Rules Per diems, standard deductions, standard mileage allowances ...
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- Spring '09