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COMPUTATION OF TAX LIABILITY
Income
- Deductions
= taxable income (tax base)
x rate
= tentative tax
- credits
= tax liability
-
TYPES OF TAXES
Property Taxes (Ad Valorem)
-
Based on value
Most commonly places on realty (home)
Question: Where does most of the money raised from property taxes go?
Answer: schools
-
d.
e.
f.
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Estate Tax
Imposed on TRANSFER of wealth
Imposed on decedent (one who died)
Federal (could be state too)
Inheritance Taxes
Same as estate tax, but imposed on recipient of property
Only imposed by some state governments (no Federal)
Gift Taxes
Imposed on donor (giver)
Estate, inheritance and gift taxes all based on FMV of property being
transferred
Income Taxes
-
U.S. has self-assessing system list out revenue, deductions, etc. We are
Employment Taxes
1. FICA (Federal Insurance Contributions Act Social Security Tax)
- Social security: disability, survivors, retirement / Medicare: medical hospital
insurance
- Employer matches what employee pays
- Self-employment tax which covers both portions (double)
- Social Security portion (6.20%) has a cap
- Medicare portion (1.45%) does not have a cap
- DIAGRAM IN NOTEBOOK
2. FUTA (Federal Unemployment Tax Act)
- Funds unemployment compensation (employer paid only)
Consider: If earn $1, only receive .9235 because social security taken off top. But
$1 taxed. Whats the rationale? Does it hold up?
Answer: Rationale: Social security is still your money for retirement Hold
up: Social Security can become taxable meaning taxing twice
Proposed Changes
1. The Flat Tax: Flat rate across board with tiers (making progressive with tiers)
2. VAT Tax (Value Added Tax): paying tax on what adding to product and then
reflected in price point
3. National Sales Tax: get rid of all other taxes (savers get money back) state tax
too
Questions:
Mitigation of multiple taxation deduction for state, local, and foreign taxes
Deferral of tax until wherewithal to pay
a. Installment sales
b. Like-kind exchanges
Creates law
Question 1: In which House must all revenue bills begin? Which committee has
jurisdiction over tax matters?
Answers: House: House of Representatives
Committee: House Ways and Means Committee (Paul Roman from WI
head) starts law sends to House of Representatives
-
Then to Senate
Then to joint conference committee: talk about why differences and then write
Executive Branch
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authorities
Three possible status of regulations
a. Proposed regulationscomments by outside firms
i. No legal effect
ii. But probable retroactive effect to when first proposed (what think
going to do)
b. Temporary regulations only in effect for 3 years