Beruflich Dokumente
Kultur Dokumente
McGraw-Hill/Irwin
Introduction
An income tax was first enacted in 1861 and repealed after the Civil War ended An an income tax law was passed in 1894 and was rejected by the Supreme Court in 1895. Sixteenth Amendment to the Constitution was passed in 1913
This is the basis of modern income tax law
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Introduction
Over 132 million individual income tax returns are filed annually
Over 50% are filed electronically
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Taxes are levied by multiplying a tax rate (the rate of tax) by a tax base (the amount taxed).
May be multiple rates on multiple bases (see Table 1-2)
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LO #1 Understand progressive, proportional, and regressive tax structures Regressive tax structure:
the tax rate decreases as the tax base increases. Example is social security tax system
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LO # 2 Marginal and Average Tax Rates Average tax rates is the total tax paid for a certain amount of taxable income
Total tax / taxable income = average tax rate
Marginal tax rates are the rate of tax that will be paid on the next dollar of income.
Determined with reference to tax tables For example, a married couple will pay a marginal rate of 15% on their $35,000th dollar.
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All follow the basic income tax formula Form 1040EZ is the simplest form
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LO #4 Calculation of Tax
For taxable income up to $100,000, use tax tables (printed in the back of the book) Tax rate schedules used for higher income Tax tables calculate tax at the midpoint of the range on the table Tax rate schedules calculated precisely
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LO #3 Tax Payments
Tax liability is generally paid throughout the year through withholding tax payments deducted from wages
Also reported on W-2
Low income taxpayers may be eligible for the Earned Income Credit
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LO #3 Tax Payments
A tax return is also used to settle up with the IRS at the end of the year. When filing a tax return, taxpayers will either
Owe the IRS (tax liability > payments) Receive a refund (tax liability < payments)
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LO #5 Tax Authority
Tax authority is the body of law, regulation, and precedent that guide taxpayers, the IRS, and the courts in the proper application of tax law. Three types of primary tax authority:
Statutory sources Administrative sources Judicial sources
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LO #5 Tax Authority
Statutory sources of tax authority
16th amendment to the U.S. Constitution Internal Revenue Code (IRC)
Passed by Congress and signed into law by the president
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LO #5 Tax Authority
Administrative sources of tax authority, in order of strength
Treasury Regulations (IRS Regulations) Revenue Rulings Revenue Procedures Private Letter Rulings IRS Notice
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LO #5 Tax Authority
Judicial sources of tax authority
Courts resolve disputes between taxpayers and IRS. Initial court of jurisdiction is either
Tax Court U.S. District Court U.S. Court of Federal Claims
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LO #5 Tax Authority
Tax Court and District Court rulings can be appealed to the U.S. Court of Appeals and then to the Supreme Court U.S. Court of Federal Claims rulings can be appealed to the U.S. Court of Appeals and then to the Supreme Court.
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