Study sets, textbooks, questions
Upgrade to remove ads
Intro to Tax Chapter 1
Federal Income Tax - An Overview
Terms in this set (69)
What is the definition of a tax?
-An enforced, involuntary contribution
-Required and determined by law
-Providing revenue for public and governmental purposes
-For which no specific benefits or services are received
Adam Smith's Four Criteria
Tax should be based on the taxpayer's ability to pay
Two Types of Equity
Horizontal and Vertical
Two similarly situated taxpayers are taxed the same
Differently situated taxpayers are taxed differently but fairly
When and how a tax is to be paid should be known to the taxpayer
Tax should be levied when the taxpayer has funds available to pay
The costs of complying with the tax system should be minimal
Equation for Tax
Tax=Tax Base*Tax Rate
Marginal Tax Rate
The rate of tax on the next dollar of taxable income
Average Tax Rate
The rate equal to the total tax divided by the tax base
Proportional Tax Structure
Average tax rate
remains the same
as tax base increases
Regressive Tax Structure
Average tax rate
tax base increases
Progressive Tax Structure
Average tax rate
tax base increases
6 Major Types of US taxes
2. Corporate Income
4. All Others
Taxes that are paid by individuals, corporations, estates, and trusts
Taxes that are paid by purchasers of goods and services
Taxes that are paid by employees, employers, and self-employed t/p.
Tax base of income tax
total income less allowed deductions (taxable income).
Tax base of sales tax
is the selling price of a product or a service
Tax base of employment taxes
wages and salaries earned
Two major types of employment tax
Social Security and Unemployment Taxes
What is the standard rate for social security taxes?
Employee and Employer each pay -
a) 6.2% OASDI on the first $106,800 of wages.
b)1.45% Medicare tax on all wages - no limit.
What is the standard unemployment tax rate?
Employer pays 6.2% of the first $7,000 of wages paid to each employee.
Taxes that are paid by owners of property
What is considered real property?
Land and any structures that are permanently attached to it (buildings)
Two Types of Property
Real property and Personal Property
What is the tax base for property?
the assessed value of property (ad valorem)
the assessed value of property
Taxes that are paid by purchasers
What is the tax base of an excise tax?
The quantity purchased and not the value of the purchase
Wealth Transfer Tax
Taxes that are paid by entity transferring property
What is the tax base of wealth transfer tax?
The value of the property transferred
What is excluded in the wealth transfer tax?
Transfers to spouses and charities
What is the Lifetime Credit?
Credit that excludes up to $1M of gifts and $5 million of an individual's estate
Law (Internal Revenue Code)
Treasury regulations and IRS pronouncements
Supreme Courts and other courts
What are the three sources of Federal Income Tax Law?
Legislative, Administrative, Judicial
Broadly defined income
3 Deduction Examples
Expenses, Losses and Exemptions
Current period expenditures incurred in order to earn income
Two Types of losses
Transaction and annual
A minimum amount of income needed for basic living
result when an asset is disposed of at a price less than its tax cost
result when allowed deductions exceed income
What were the two exemptions this past year?
Personal and dependency ($3,700 each)
Two Types of Deductions
For Deductions and From Deductions
Not restricted based on taxpayer's income and are generally trade, business, rent or royalty expenses
Restricted based on Adjusted Gross Income and are generally personal expenses that are either
itemized or are the standard amount (changes with filing status)
Tax Formula for AGI
Tax Formula for Taxable Income
From Deductions AND Exemptions
Tax Formula For Tax Due
Income Tax Liability
Prepayments and Credits
Tax or (Refund) Due
What are the 2 filing requirements
1. Return must be filed annually
2. Calendar-year individuals file and pay on or before the 15th day of April
Can you receive an extension of time to file?
Yes; but not time to pay
Statute of Limitations
You have three years from filing date. It
extends to six years if income is under-reported by 25% of gross income and there is
no limitation for fraud or if no return is filed
How many people get audited each year?
Only about 2% of returns are audited
3 Types of Audit Examinations
1. Correspondence examinations
2. Office examinations
3. Field examinations
What is the settlement procedure when audited?
Must report of outcome of audit and also there is a waiver of assessment (Form 870) as well as a
If you appeal the audit then what 2 things must be done?
Must have a meeting with IRS Appeals Division and write a 90-day letter
What is the goal for tax planning?
maximize after-tax wealth
Time value of money
Defer income and accelerate deductions
When should you recognize income in year of marginal rate?
Recognize income in year of lower marginal rate
When should you recognize deductions in year of marginal rate?
Recognize deductions in year of higher marginal rate
Who should you shift income to when dealing with marginal rates?
Lower marginal rate
What does tax avoidance mean?
Taxpayers have no obligation to pay more tax than the law requires
What does tax evasion mean?
Taxpayers may not use fraudulent or deceptive behavior to hide tax liability
Tax avoidance quote
There is nothing inherently illegal or immoral in the avoidance of taxation according to the tax system's rules. The eminent judge Learned Hand best expressed this doctrine in the dissenting opinion of Commisioner v. Newman, 159F.2d 848 (CA-2, 1947):
Over and over again, courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor, and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced extractions, not voluntary contributions.
What is the duty of good faith and fair dealing?
14. Legal concept that vests title to mortgaged property in the mortgagee (lender).
Who is the current ICJ president?
The agent who has complete authority over any activity of the principal is known as a/an...?
Sets found in the same folder
CGC1 West Chapter 1 Introduction to Taxation and U…
Managerial Accounting Unit 1 Class Notes
LR475 - 4 Economics/Trade
WGU Concepts in Financial Accounting and Tax ACO1
Sets with similar terms
Tax Accounting Chapter 1
ACCT 405 Ch. 1
Macroeconomics Chapter 6
Other sets by this creator
Chapter 20 ACCT 4400
Chapter 19 ACCT 4400
Chapter 2 ACCT 4400
Chapter 1 ACCT 4400
Other Quizlet sets
Digital Marketing & Business Fundamentals
Unit test review
Chapter 5 Test