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2 components to a taxes
tax rate and a tax base
Tax liability computed
multiplying the tax rate and tax base
what are the 4 kinds of tax bases most taxes are levied on?
- 1. Transactions (sales, transfers of wealth)
- 2. Property or wealth
- 3. Privileges and rights (ability to do bus as corp, right to work in certain professions, ability to move goods between countries)
- 4. Income on a gross or net of expense basis.
3 types of transaction taxes
- 1. sales and certain excise taxes
- 2. employment taxes
- 3. taxes on transfers of wealth
What are the taxes on the production of the sales of goods?
- 1. Sales tax (broad based)
- 2. Excise tax (limited to a specific kind of good or service.
- Federal Excise: customs duties, 3% of US revenues. Trucks, tires, tabacco, firearms, certain sporting equip, air travel.
- State Excise: mostly the same as federal. inc hotel, transfer of property, stocks
- Local Excise: Hotels, rental care.. finances special projects that generate civic pride
- General Sales Tax: broad based is major source of $ for state and local. Proportional tax rate. some exempt food and meds
- Use taxes: value based tax
- Value Added Taxes: tax added at the production level
What are the various Employment taxes?
- FICA: 2 components.. old age, survivors , and disability insurance payments SS. & Medicare health insurance payments. Medicare is 1.45% to both. 2013 both employee and employer both pay 6.2% for SSI. Employers must file Form 941.
- Federal Estate Tax: objective to not keep large amnts of wealth within one family for many generations. Starts at gross estate, deductions of taxable estate, range from 18-35%. Spouses can share 10 million exclusion. First 5 mill excluded from estate tax with 35% of excess.
- State Taxes at Death: depends on how close you are to decedent, and some states don't tax spouse.
- Gift Tax: during life
- Taxes on realty: ad velorem (value based in some cases). Fed govt property exempt, lower valuations on ag property, some states exempt home, lower taxes to over 65 yrs old in some cases, tax holiday to new business.
- Taxes on Personalty: inc all assets that not realty. Business use or personal use. ExL Home (person use), office building (business use), casual clothing (personal use personalty) tangible and intangible like stocks and bonds.
Taxes on Privileges and Rights
- Usually considered excise taxes
- Federal Customs Duties: acct for only 1% towards revenue.
- Franchise Taxes and Occupational Taxes: privilege of doing business in a state or local jurisdiction. imposed typically on corporations. Occupational are liquor licenses, taxicab permits, fee to profession are usually to law, medicine or accounting.
- Severance Taxes: based on the extraction of natural resources.
- Imposed on individuals, corps, and certain fiduciaries (estates and trusts). Withholding requirements
- The Structure of the Federal Income Tax: based on doctrine "legislative grace" that all income is subject to tax and no deductions unless allowed by law. Income taxes are progressive. Corporations/estates range. between 15-35%
- Basic formula:
- Income $xx
- Less: Exclusions $(xx)
- Gross income xxLess deductions $(xx)
- Taxable income $xxx
- Federal income tax on taxable income xx
- Less tax credits (xx)
- Tax owed or refund $xx
- Deductions: separated 2 cats. for AGI (business) and deductions from AGI (personal).
- State Income Taxes: Except: AK, FL, NV, SD, TX, WA, WY.
- Local Income Taxes: designed to collect contributions for government services from those who live in the suburbs but work in the city as well.
not a separate taxable entity. reports net profits of the business on their own individual tax return. Reports a Sch C (profit or loss from business) and net profit or loss on 1040
Some corps pay tax on corporate taxable income, while others don't. Referred to as C corporations because they are governed by Subchapter C of the internal Revenue Code. Corps that meet the requirement and pay no taxes are referred to as S corporation and governed by Subchapter S. C corps must file a tax return. Shareholders pay income tax on dividends. DOUBLE TAXATION
separate taxable entity. required to file a Form 1065 which summarizes the financial results of a business. then reports their share of net income or loss
- Like C for all non tax purposes. Shareholders have limited liability.
- Like partnership regarding taxation. Subjects to federal income tax. Files a Form 1120S
Limited Liability Companies and Limited Liability Partnerships
LLCs and LLPs offer some limited liability and some of the corporations non tax benefits. Both are treated as partnerships for tax purposes.
reduces the taxpayers taxable income
reduces the tax liability dollar for dollar and is not affected by the taxpayers tax rate