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83 terms

Acct321 Tax Ch 1&2

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tax
is a payment required by a government that is unrelated to any specific benefit or service received from the government agency
tax
payment required, payment imposed by government agency (fed, state, or local), and payment not tied directly to benefit received by the taxpayer
tax rate
level of taxes imposed on the tax base and is usually expressed as a percentage
tax base
defines what is actually taxed and is usually expressed in monetary terms
tax
tax base * tax rate
average tax rate
the taxpayers average level of taxation on each dollar of taxable income
average tax rate
total tax/taxable income
effective tax rate
the taxpayers average rate of taxation on each dollar of total income (taxable and nontaxable)
effective tax rate
total tax/total income
marginal tax rate
the tax rate that applies to the next additional increment of a taxpayers taxable income
sin tax
impose relatively high surcharges on alcohol and tobacco products and are meant to discourage some behaviors
earmarked tax
a tax that is assessed for a specific purpose ie. 1% sales tax for education
marginal tax rate
(new total tax - old total tax)/(new taxable income - old taxable income)
proportional tax rate
flat tax- imposes a constant tax rate throughout the entire tax base
in proportional tax rate
the marginal tax rate remains constant and equals the average tax rate (ex: sales tax)
progressive tax rate
imposes an increasing marginal tax rate as the tax base increases
in this tax structure the average tax rate will always be less than or equal to the MTR
progressive tax structure
social security tax and state/federal income tax use this tax structure
regressive tax structure
federal and most state income taxes use this tax structure
progressive tax structure
income taxes
represent approximately 60% of all tax revenues collected in the United States
employment and unemployment taxes are examples of what type of taxes
federal taxes
federal taxes
affect individuals, corporations, estates and trusts
employment and unemployment taxes
second largest group of taxes imposed by the US government
employment taxes
include the OASDI social security tax 10.4% and MHI medicare tax 2.9%
OASDI social securities tax
is capped at wages of $106,800 and is split between the employer (6.2%) and employee (4.2%)
implicit taxes
indirect taxes that result from a tax advantage the government grants to certain transactions
implicit taxes
defined as the reduced before-tax return that a tax-favored asset produces because of its tax advantage status
sufficiency
involves assessing the size of the tax revenues that must be generated and making sure that the tax system provides these revenues
sufficiency
means that a government must raise enough revenues to keep itself alive
sufficiency
designing a system to generate enough revenue to cover costs
static revenue forecasting
it ignores how taxpayers might alter their activities in response to the tax law change and bases projected tax revenues on the existing states of transactions
dynamic revenue forecasting
tries to predict possible responses by taxpayers to new tax laws
income effect
as tax rates go up, people will work harder to maintain the same after-tax income
substitution effect
as tax rates go up, people will substitute non-taxable activities because the marginal value of taxable ones has decreased
explicit tax
directly imposed by a government and is easily quantified
equity
fairness- in general terms a tax system is considered fair if the tax is based on the payers ability to pay
horizontal equity
two tax payers in similar situations pay the same tax
vertical equity
tax payers with greater ability to pay tax pay more than tax payers with less ability to pay
certainty
means that taxpayers should be able to determine when to pay the tax, where to pay the tax, and how to pay the tax
convenience
a tax system should be designed to be collected without undue hardship to the taxpayer
economy
should minimize the compliance and administration costs associated with the tax system
estates and trusts
are required to file if gross income exceeds $600
corporations
are required to file regardless of taxable income
individuals
filing is determined by taxpayer's filing status, age, and gross income
tax return due date for individuals
15th day of the 4th month following the end of tax year (usually April 15th)
tax return date for corporations
15th day of the 3rd month following the end of tax year
due dates on saturday, sunday or holidays
are extended to the next business day
individuals and corporations
are allowed to apply for an automatic 6th month extension
statue of limitations
the time in which the taxpayer can file an amended return or the IRS can assess a tax deficiency
primary authorities
official sources of tax law
primary authorities
statutory sources, judicial sources, administrative sources
secondary authorities
unofficial tax authorities
secondary authorities
tax services, tax articles
correspondence examinations
the most common type of IRS audit conducted by mail and is generally limited to 1 or 2 items. It is the narrowest in scope and least complex
office examinations
second most common type of IRS audit
field examination
least common type of IRS audit and is conducted at the taxpayers place of business and is the most complex
30 day letter
given to the taxpayer if after the audit they dispute the changes and it gives them 30 days to 1)request conference with appeals officer 2)agree to the adjustment
90 day letter
statutory notice of deficiency, taxpayer has 90 days to 1) pay the proposal 2) file petition in the us tax court
us constitution
the highest authority in the us
tax treaties
negotiated agreements between countries that describe the tax treatment of entities subject to tax in both countries
internal revenue code
the main statutory authority and changes are enacted by congress
judicial sources
the courts; tasked with the ultimate authority to interpret the internal revenue code and settle disputes between taxpayers and the IRS
supreme court
the highest judicial authority and is on the same level with the internal revenue code with regard to authority
court of appeals
13 circuit courts which is the next level of judicial authority. if you loose here you do not have the right to supreme but you can apply
us district court
is the only court with a jury
us tax court
do not have to pay to play
stare decisis
is the judicial doctrine that means that a court will rule consistently with its previous rulings and the rulings of higher courts with appellate jurisdiction
golsen rule
states that the tax court will abide by the rulings of the circuit court that has appellate jurisdiction for a case
statutory authorities
U.S. Constitution, tax treaties, internal revenue code
judicial sources
the courts; supreme court, court of appeals, trial level courts (us district court, us court of federal claims, us tax court)
administrative sources
the US treasury
regulations
the treasury departments official interpretation of the internal revenue code
regulations
have three different forms: final, temporary, and proposed (temporary has the same authority as final)
under circ 230
you can represent yourself, a family member (immediate), your employer if your a full time employee, a partnership if your the general partner, your corporate employer if your an officer or full time employee
in a progressive tax rate structure
the average tax rate would be expected to be less than or equal to the marginal tax rate
tax-advantaged assets
are often subject to implicit assets
tax brackets
when different tax rates are applied to the tax base divided into a series of monetary amounts
temporary regulations
have a limited life of 3 years
revenue rulings
address the application of the code and regulations to a specific factual situation
revenue procedures
explain in greater detail IRS practice and procedures in administering the tax law
revenue rulings & revenue procedures
are 2nd in administrative authoritative weight
letter rulings
are less authoritative but more specific than revenue rulings & procedures
private letter rulings
represent the IRS's application of the code and other tax authorities to a specific transaction and taxpayer; issued in response to a taxpayers request