...Federal Tax Law Effect on Individual Taxpayers Regarding Earned Income Tax Credit Federal Tax Law Effect on Individual Taxpayers Regarding Earned Income Tax Credit Jaree Chambers DeVry University / Keller Graduate School of Management Abstract Federal tax law effects each taxpayer differently and can prove difficult to interpret. The differences very due to income, family size or family situations i.e. single, married, divorced, childless, etc., and allowable credits or deductions. During our review of the Federal tax laws in this paper, we will briefly document how the United States taxation system developed and the effects of the earned income tax credit on taxpayers. While the earned income tax credit and the child tax credit came to be around the same time, we will focus on the earned income tax credit as it is our largest federal entitlement program. Federal Tax Law Effect on Individual Taxpayers Regarding Earned Income Tax Credit Taxation dates back to the United States Constitution empowering Congress to “lay and collect taxes, duties, imports and excises to pay the debts and provide for the common defense and general welfare of the United States.” Limitations were established limiting taxation as follows: “all duties, imports, and excises shall be uniform throughout the United States, that direct taxes should be laid in proportion to the population.” This language is key as many early tax laws were found to be unconstitutional due to these two simple terms:...
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...Research Problem 1 1. Discuss the different types of interests and the IRS rule related to the deductibility of each type for tax purposes. Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. There are different types of interests, including investment interest, qualified residence interest, student loan interest, and personal interest, which are either deductible or nondeductible. Personal interests are interests on car loans, credit cards, loans for appliances and furniture and interest on loans made by one person to another. Personal interest is nondeductible. If interest is paid on a qualified student loan, taxpayers may be able to deduct the interest as deduction for AGI. Generally, the allowable amount for student loan is lesser of $2,500 or the amount of interest taxpayer actually paid. Investment interest is interest paid on money borrowed to purchase or hold investment property. It is tax deductible on income tax return up to the amount of the net investment income. However, if the interest is incurred to produce tax exempt income, it cannot be deducted. Investment interest is not any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. The qualified residence interest is interest taxpayer pays on a loan secured by one’s main home or a second home. The loan may be a mortgage to buy primary home, a second mortgage, a home equity loan, or line...
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...Ketlie K. Daniels Professor: Christopher Zapalski Federal Taxation – ACC 307 006016 November 21, 2010 Discuss the different types of interests and the IRS rule related to the deductibility of each type for tax purposes. Interest is defined as compensation for the use or forbearance of money. The general rule permits a deduction for interest paid or accrued within the taxable year on indebtedness. There are several types of allowable interest. If you paid or accrued interest on a loan and used the loan proceeds for more than one purpose, you may have to allocate the interest. This is necessary because different rules apply to investment interest, personal interest, trade or business interest, and home mortgage interest. Interest on Qualified Student Loans - The deduction is allowable only to the extent that the proceeds of the loan are used to pay qualified education expenses. Interest paid on student loans are treated differently than other interest expenses. Unlike other interest, student loan interest is not itemized on your tax return, which means it can be deducted regardless of whether you itemize or use the standard deduction. Investment Interest - is interest paid on money borrowed to purchase or hold investment property. Investment interest is deductible as an itemized deduction to the extent of net investment income. Qualified Residence Interest - interest on a home mortgage, which may be deductible as an itemized deduction. Includes interest on acquisition...
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...1 Tax Credits / Alternative Minimum Tax Federal Tax I Fall 2012 OVERVIEW: This handout summarizes the Tax Credits and Alternative Minimum Tax topics in chapter 7 of your textbook. These are the last topics we will be covering this semester, and as previously discussed I am providing this handout supplementing the material contained in your text due to the time we lost because of Storm Sandy. The material on Tax Credits is contained on pages 7-23 – 7-34 (11 pages) of your textbook. The material on AMT (Alternative Minimum Tax) is covered on pages 7-8 – 7-14 (7 pages). So this is only 18 pages of chapter 7. We covered the rest of chapter 7 earlier this semester prior to exam 2. Tax Credits: As you will recall from very early in the semester, tax credits are a direct dollar for dollar reduction of our income tax liability. We looked at the value of a tax credit compared to the value of a tax deduction. Tax credits can either be nonrefundable or refundable. A nonrefundable credit will reduce a taxpayer’s tax liability, but never below zero. A refundable credit, on the other hand, will go even further. If the credit is large enough to reduce a taxpayer’s tax liability to zero, the excess credit will be refunded to the taxpayer (i.e. treated as additional tax paid in. Example 1: Tom has a tax liability of $ 3,000, a nonrefundable credit of $ 4,000, and federal tax withheld of $ 1,500. Calculate Tom’s refund: Tax Liability Less: credit Net tax Less Withholding Refund $ 3,000 ( 3...
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...Arayawna Moore ACCT 613- Federal Income Taxation February 22, 2014 University of Maryland University College Susan K. Duke Issue: The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States within the Labor Market Rule: * Most corporate income is subject to a 35% statutory tax rate * Taxpayers with an ordinary income tax rate of 15% or less pay the 0% rate on dividends. Taxpayers in the 25%, 28%, 33%, and 35% tax brackets are subject to a 15% tax rate on dividends. * 26 U.S. Code § 861 - Income from sources within the United States * 26 U.S. Code § 3510 - Coordination of collection of domestic service employment taxes with collection of income taxes * 26 U.S. Code § 3401 - Definitions Analysis: This article helps the reader look beyond the impact of tax changes on output or revenues allowing us to gain further insight into how tax changes are transmitted to the economy and into possible differences between the two tax components; personal and corporate income tax. The authors point out that changes in taxes may impact on costs of production and may affect inflation, to the extent that cost changes are passed into prices. There are important differences in how personal and corporate income tax changes affect the labor market. Studies that focus exclusively on total average tax rates or revenues are therefore only of limited use for assessing the ability of tax policy to affect employment...
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...14-24 ANS According to IRS code sec 243, the purpose is to avoid triple taxation that’s allowing corporation to pay dividends to its shareholders without being taxed for the third time. Domestic corporations and dividends paid by the domestic corporation are entitled to the claim of dividends-received deduction. 14-51 ANS The net income on its financial books of a corporation my differ from the taxable income on its return and reconciliation is used to reconcile the difference. 14-52 ANS a) Realized gain but unrecognized ($27,000-$15,000=$12,000) Basis of $15,000 b) Recognized gain of $2,000 ( $3,000-$1,000) Basis of $1,000 c) $10 per stock *900 shares =$9,000 Basis of the stock is $15,000 less $9,000 (shares of 900*$10 per stock) gain of $6,000 to the corporation ($15,000-$9,000) Basis to the corporation of the property received is $15,000 d) $10 per stock *100 shares = $1000 Basis of stock is $1,000 less $1,000 (100 shares*10) no gain or loss ($1,000-$1,000) Basis to the corporation of the property received is $1,000 17-1 ANS Seven types of corporate reorganization Type A reorganization is a form of consolidation or merger that meeting state law requirement. (Reg. 1.368-2(b)) Type B reorganization is a form of reorganization used to acquire asset and stock of Target Corporation. Type C reorganization is a form of reorganization that the corporation acquiring the target corporation exchanges the massive acquisition of the target corporation for its voting...
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...Abstract: Jonathan (taxpayer) was notified by the IRS that he should appear at the local IRS district office with support for his 2009 travel and entertainment expenses as well as his charitable deductions. Jonathan advised his tax preparer that he was not going to make the meeting and elected and appointed, Sue Johnson, CPA to go in his place. What penalty or penalties could Jonathan be subject to? What about the Sue Johnson, CPA? Second, depending on the outcome and if Jonathan does not agree with the findings of the IRS, what are his options? The Internal Revenue Service performs audits to verify certain variances within the tax laws and codes. And at times it is necessary for these agents to meet with the taxpayer for further explanation on certain deductions or expenses to verify that the taxpayer is taking the proper deductions and that the tax laws and codes set forth by the Treasury Department is being followed. There are however, extreme circumstances that would prevent the taxpayer to meet with the agent i.e. not available or not proficient to answer questions such as a disability. A taxpayer at that point has little to no control over the decisions made and based on the determination would have to appeal the findings. The taxpayer in this case elected to not appear for the meeting because it was a beautiful day and wanted to go skiing rather than the prescheduled appointment. In this case, Jonathan should fill out and sign a Form 2848 authorizing...
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...Chapter 3 3.1 Tax Formula Income (Gross receipts, taxable and nontaxable, except return of capital or receipt of borrowed funds) Less: Exclusions Gross Income Less: Deductions for AGI AGI Less: Greater of itemized/standard deduction Less: Personal/dependent exemptions Taxable Income Less: Tax Credits Tax Due/Refund Deductions for AGI (above the line deductions) * Expenses incurred in a trade or business * One half of self-employment tax paid * Unreimbursed moving expense * Contributions to traditional IRAs and other retirement plans * Fees for college tuition and related expenses * Contributions to health savings accounts * Penalty for savings early withdrawal * Interest on student loans * Excess capital losses * Alimony payments AGI * Basis for computing percentage limitations on certain itemized deductions such as medical expenses, charitable contributions, and certain casualty losses * Medical expenses deductible only to extent they exceed 7.5% of AGI (medical exp – (7.5*AGI)) * Charitable contributions cannot exceed 50% of AGI Personal and Dependency Exemptions * Taxpayer, spouse, and any dependent $3800 Itemized Deductions * Personal expenses such as medical exp, certain taxes and interest, and charitable contributions. * Real estate taxes, state and local taxes...
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...Memo To: John and Jane Smith From: Desiree Looft, CPA Date: September 24, 2011 Subject: Explanation of tax benefits and liabilities for business and personal. 1(a) As a result of a recent court settlement for a client John earned $300,000 for his law practice LLC. He wants to minimize his tax liability and understand how the IRS will treat this money earned. He lease’s office space for $3,500 per month. He wants to know the advantages in leasing office space versus purchasing the building. John has income derived from a business and as such the gross income will be taxable. (Code §1.61-3(a)) This total amount of taxable income will pass through to his personal taxes since he has an LLC, meaning he will be subject to self employment tax. ( ) He will get a break on the self employment tax since he will get a deduction from gross income for half of the self employment tax liability. John currently has a lease payment that provides him a deduction of $42,000 per year. (Code §162(a)) He is allowed this deduction since this lease is required to be made in order for his business to continue and he has not title or equity in the building. If purchases the building he will no longer have this deduction because capital purchases are not allowed for any expenditure for new buildings or to improve property. (Code §263) John and Jane could establish traditional IRA’s and make contributions up to $5,000 each. Even though Jane has a minimal income John is allowed to establish...
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...Rev. 06/2014 FACTS Why? WHAT DOES SALLIE MAE® DO WITH YOUR PERSONAL INFORMATION? Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. The types of personal information we collect and share depend on the product or service you have with us. This information can include: Social Security number and income Account balances and payment history Account transactions and credit history All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons Sallie Mae chooses to share; and whether you can limit this sharing. What? How? Reasons we can share your personal information For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus For our marketing purposes – to offer our products and services to you For joint marketing with other financial companies For our affiliates’ everyday business purposes – information about your transactions and experiences For our affiliates’ everyday business purposes – information about your creditworthiness For...
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.... (TCO 2) Barry owns a 30% interest in a partnership that earned $300,000 this year. He also owns 30% of the stock in a C corporation that earned $300,000 during the year. The partnership did not make any distributions, and the corporation did not pay any dividends. How much income must Barry report from these businesses? (Points : 2) | $0 income from the partnership and $0 income from the corporation $0 income from the partnership and $90,000 income from the corporation $90,000 income from the partnership and $0 income from the corporation $90,000 income from the partnership and $90,000 income from the corporation None of the above | Question 2. 2. (TCO 2) Lilac Corporation, a closely held corporation (not a PSC), had $180,000 of active income, $110,000 of portfolio income, and a $195,000 passive loss during the year. How much of the passive loss is deductible? (Points : 2) | $0 $110,000 $180,000 $195,000 None of the above | Question 3. 3. (TCO 2) Eagle Corporation owns stock in Hawk Corporation and has taxable income of $160,000 for the year before considering the dividends received deduction. Hawk Corporation pays Eagle a dividend of $200,000, which was considered in calculating the $160,000. Which amount of dividends received deduction may Eagle claim if it owns 15% of Hawk’s stock? (Points : 2) | $0 $112,000 $140,000 $160,000 None of the above...
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...Concepts in Federal Taxation 2011 Murphy Higgins 18th Edition Solutions Manual Click here to download immediately!!! http://www.testbankpdf.com/taxation/concepts-in-federal-taxation-2011murphy-higgins-18th-edition-solutions-manual/ ----------------------------------------------------------------------Concepts Concepts Concepts Concepts in in in in Federal Federal Federal Federal Taxation Taxation Taxation Taxation 2011 2011 2011 2011 Murphy Murphy Murphy Murphy Higgins Higgins Higgins Higgins 18th 18th 18th 18th Edition Edition Edition Edition Solutions Solutions Solutions Solutions Manual Manual Manual Manual -------------------------------------------------------------------------***THIS IS NOT THE ACTUAL BOOK. YOU ARE BUYING the Solution Manual in e-version of the following book*** Name: Concepts in Federal Taxation 2011 Author: Murphy Higgins Edition: 18th ISBN-10: 0538467924 Type: Solutions Manual - The file contains solutions and questions to all chapters and all questions. All the files are carefully checked and accuracy is ensured. - The file is either in .doc, .pdf, excel, or zipped in the package and can easily be read on PCs and Macs. - Delivery is INSTANT. You can download the files IMMEDIATELY once payment is done. If you have any questions, please feel free to contact us. Our response is the fastest. All questions will always be answered in 6 hours. This is the quality of service we are providing and we hope to be your helper. Delivery is in the next moment...
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...Chapter 10 Operational Assets: Acquisition and Disposition Questions for Review of Key Topics Question 10-1 The term operational asset is used to describe the broad category of long-lived assets that are used in the production of goods and services. The difference between tangible and intangible assets is that intangible assets lack physical substance and they primarily refer to the ownership of rights. Question 10-2 The cost of an operational asset includes the purchase price (less any discounts received from the seller), transportation costs paid by the buyer to transport the asset to the location in which it will be used, expenditures for installation, testing, legal fees to establish title, and any other costs of bringing the asset to its condition and location for use. Question 10-3 The cost of a developed natural resource includes the acquisition costs for the use of land, the exploration and development costs incurred before production begins, and the restoration costs incurred during or at the end of extraction. Question 10-4 Purchased intangibles are valued at their original cost to include the purchase price and all other necessary costs to bring the asset to condition and location for use. Research and development costs incurred to internally develop an intangible asset are expensed in the period incurred. Filing and legal costs for both purchased and developed intangibles are capitalized. Question 10-5 ...
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...The Patient Protection and Affordable Care Act was passed into law in 2010 and implemented in 2014. The goal of the bill was to create affordable health insurance policies so most individuals throughout the United States are covered by a health insurer. If an individual does not comply and purchase a mandated health insurance policy, he or she is subject to a penalty tax. This tax is the greater of a flat tax of up to $695.00 for each individual or 2.5% of the household income. This expansion of federal taxation is unprecedented and dangerous. The policy is fundamentally instructing the taxpayers how, where and when to spend their money. Once the Supreme Court upheld the ruling that the fines for non-compliance are actually taxes and not penalties, the law-makers have essentially been given permission to create other similar policies that require the taxpayers to spend money in a specific manner if the legislators believe it is in the best interest of the country. There are currently few issues that would require a similar policy. However, if a similar issue arises in the future, a precedent to implement a similar law mandating that citizens spend their money in a particular manner exists. The idea that the government determines how citizens spend money is not groundbreaking. Tariffs and subsidies have instructed citizens how to spend money in this country for decades. Both tariffs and subsidies indirectly form spending. The government decides which industries are...
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...Public Finance Methods in Nigeria The Federal Republic of Nigeria is comprised of 36 states located in West Africa geographically bound by the Republic of Niger to the north, the Gulf of Guinea (on the Atlantic Ocean) to the south, the Republic of Cameroon and Chad on the east and Republic of Benin on the west. Since gaining full independence from the British in 1960, Nigeria has gone from a Parliamentary system of government (modeled after the British Parliament), the Biafran Civil War, and numerous dictatorships to the current Democratic system of government. Widely described as the most populous country in Africa (accounting for over half of West Africa’s population alone[i]), the US State Department estimated in 2010 a population of approximately 152 million people of 250 Ethnic groups with the largest ethnic groups comprising of Hausa-Fulani (north), Igbo (south-east), Yoruba (south-west) and Kanuri (north). The religions practiced in Nigeria are Islam, Christianity and indigenous African traditional worship. The Hausa’s are from the northern part of the country and are predominantly Muslims, the Yoruba are from the south west and are predominately an even mix of Christians and Muslims, the Igbos are from the southeast and are predominately Christians. The official language of Nigeria is English in addition to other local dialects. Nigeria’s commercial capital (and former political capital), Lagos, is located in the southwestern part of the country while the political...
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