...discuss the question of whether the owner of a small business corporation is better off taking a salary or drawing a dividend. The salary vs. dividend question is common among small business corporation owners. Unfortunately, there is no one straight forward answer. There are two types of share holder owners who are eligible to extract funds from a corporation, shareholders that actively work within the corporation and shareholders that are not active within the corporation. The shareholder owner that works within the corporation is given the option of drawing a salary or dividend. The shareholder that own shares but does not actively work in corporation can draw dividends only. This paper will focus on the active owners of a small business corporation. The analysis will compare the methods and the impact on owners as well as the corporation using each approach. The mix method will also be analyzed and discussed. Basic tax concepts are based on the theory of integration. BDO defines Integration in The Tax Factor, they say that” A tax system is said to be integrated if the same amount of overall tax is paid when the income is earned indirectly through a corporation or directly by an individual.” (BDO Dunwoody, 2009, p.1) According to this theory there should be no difference to the individual regardless of the method chosen. But we know that in order for there to be integration the rates have to be perfectly matched. The tax system in Canada is not perfect and there will...
Words: 3252 - Pages: 14
...CLASS 1.1 Important concepts Entities – tax versus legal • Tax entities o People, partnerships, joint venture, companies … are considered to be entities for the purposes of calculating income tax. • Legal entities o Companies, which have separate legal personalities, are legal entities. Income flows • Income should be considered as a cash flow stream, where timing is important. • The question is, when the income recognised as earned or deducted (because tax delayed is tax denied)? CLASS 1.2 Patterns of taxation Income tax • Income tax is a progressive system. • Income tax is mainly a rich person’s tax once franking credits are taken into account to produce an “effective tax rate”. • Wealthy people pay less tax overall by reducing their tax burden through using the lower rate paid on capital gains and other tax minimisation schemes. • Total tax as a percentage of GDP is lower in Australia compared to many other countries across the world. However, these results must be considered in light of the high level of income (where it may not be as much of a burden to pay high taxes where there is high income) and quality of public goods provided in counties such as Sweden (which has the highest total tax rate as a percentage of GDP). Justifications for taxation Why do we need taxes? • Public goods argument: the government can provide some benefits to society better than anyone else. Examples include defence, and law and order. • Market failure...
Words: 34901 - Pages: 140
...also demonstrate the means that business’ can source money internally and externally. The start-up idea I will be relating this too is a car dealership in Yorkshire Mikes wheels. Internal finance is money that can be sourced from inside the business. The business in question is a small start-up business so the sources of finance are limited in terms of selling assets to free up cash; the premises are fixed assets as they are vital to the business. The cars are current assets as it is easier to turn them into cash therefore due to the nature Mikes Wheels selling cars is the objective. Profits retained from start-up businesses are usually minimal, as an owner personal savings and input are the main internal source unless a bank loan is secured. An external source of finance is the phrase used to describe funds acquired outside the business, usually used in contrast to internal sources of finance the finance is acquired from a party separate to the business e.g a) Owners who invest money in the business over a long period of time. The owner of Mikes Wheels will find himself needing to inject money into the business for a couple of years as Mikes business grows. b) Loans from a bank or from family and friends. c) Debentures are loans made to a company. d) A mortgage, which is a special type of loan for buying property where monthly payments are spread over a number of years. e) Hire purchase or leasing, where monthly payments are made for use of equipment such as a car. Leased...
Words: 1515 - Pages: 7
...Barbara Baxter Professor Bajwa Microeconomics May 10, 2010 Health Care Reforms: What They Mean to Me and the United States Can anyone accurately predict the outcome of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010? At this point it is all just speculation. The Federal Government, mainly the Democrats and the Department of Health and Human Services, paints one idealistic picture of the reform. The Federal Government envisions healthcare for all Americans at minimal expense to the consumer. The funding for this would come from a mixture of sources, including taxes on “rich” people, a new tax on expensive insurance, fees on healthcare industries, a tanning tax, and cuts on Medicare spending. Insurance companies are required to be more efficient and the increased competition should also decrease the cost of insurances policies. In theory, this all sounds great and would benefit me, my family, and other Americans with preexisting conditions but the critics are skeptical that all will go as planned. The Republicans and big business are predicting the worst outcomes of the new law. Even the Chief Actuary of the Medicare Program has now made some dire predictions on the actuality of the law, including an increase in spending. Critics predict that businesses may cut employee healthcare and pay the lower cost penalties instead. The cuts to Medicare Part A may put hospitals in debt and threaten access to care for seniors...
Words: 2393 - Pages: 10
...control and manage the business. For example, David starts up, controls and manages the business and Christina is merely employed by David. The registration requirements of a sole proprietor would include David as the owner applying for an Australian Business Number and for a Tax File Number (Birt et al. 2012). David will need a TFN as and income he earns as a sole trader will be treated as his income and taxed accordingly. David will have sole responsibility for paying tax on the business’ income. David will have many options for the way he chooses to report the entity’s financial position. This may include using an accounting package such as MYOB to determine profit. A sole-trader structure is commonly used for hairdressers and tradesmen (Birt et al. 2012). Advantages: * The company start-up and wind-down is fast and is not costly. * The paperwork required to start-up is minimal (Birt et al. 2012). * David will have complete autonomy over the running of his business. * David will not be bound by accounting standards and legal regulations. * David can use accounting packages to report financial position of company- easier to use. * David does not pay a separate income tax for his business (Birt et al. 2012). Disadvantages: * David as the owner will have full and sole liability for all business debts. * As the business is not a separate legal entity, David as the owner will be at threat of claims being made against his personal assets. ...
Words: 2328 - Pages: 10
...Paper The advantages, from a liability standpoint, of a business incorporating and that given a business is going to incorporate…the difference in tax treatment between a C-Corp, Subchapter S and an LLC When businesses are started, one consideration that must be made is what type of business it will be. Many decide to incorporate themselves and look to the advantages they may gain from this. Liability may be one of the biggest advantages to incorporating a business. Along with advantages of incorporating, the tax treatment for different types of businesses will differ whether it is a C-Corp, Subchapter S, or an LLC (limited liability corporation). All of these options will give businesses the best solution to take advantage of different types of tax treatment and the advantages of incorporating. From a liability standpoint, incorporating a business is going to protect the owners’ personal assets from business obligations, debts, and any other business activity. With out the liability protection of incorporating, the business owner is responsible for these obligations, debts, and business activity. Once an owner makes the decision to incorporate, they separate personal assets from the business (“Incorporating a business,”). It is important for owners to incorporate to help protect themselves and their families from taking on the burden of a failing business. How does incorporating protect business owners’ personal assets? Well there are many different...
Words: 4128 - Pages: 17
...financial prudence, these canons have been advocated by experts through the decades. Follow them and you can be sure that you will retire in comfort. Save 10% of your income for retirement The first rule of retirement planning is also the easiest to follow. If you have a regular job, then 12% of your basic salary and an equal contribution by your employer that flows into your Provident Fund account is a good way to build a nest egg. The best thing about this option is that you cannot avoid it. EPF rules require all employees to contribute 12% of their basic income to retiral savings, which include the Employee Provident Fund and the Family Pension Fund. It is a forced saving that becomes the default retirement plan for many individuals. The amount of contribution to the EPF does not matter. Given the power of compounding, even a small contribution can bloat into a big sum over the long term. Don't underestimate the significance of the savings in the first few years. Assuming that a 25-year-old investor puts away a fixed amount every month, his savings in the first five years will account for 44% of his total corpus when he is 60 years old. The later you start, the more you will need to save. If you have started late, say in your 40s or 50s, you will have to invest up to 20-25% of your income if you want a comfortable retirement. The 10% rule is crucial for self-employed professionals and others who are not covered by the EPF umbrella. They can opt for mutual funds...
Words: 2253 - Pages: 10
...Makers Solutions to Chapter 2 Problem Assignments Check Your Understanding 1. Tax Planning vs. Compliance Distinguish tax planning from tax compliance. Solution: Tax compliance involves the gathering of relevant information, evaluating and classifying that information, filing tax returns, and representing clients at Internal Revenue Service audits. Tax planning is the process of evaluating the tax consequences associated with a transaction and making recommendations to achieve the desired objective at minimal tax cost. It generally involves extensive tax research. 2. Tax vs. Nontax Factors For each of the following independent situations, identify whether the item would be primarily a tax or a nontax factor in performing tax planning. a. The taxpayer lost a quarter of her net worth when the dot-com bubble burst and does not want to own any investments with risk such as stock. b. The taxpayer hates to pay any federal income taxes and would rather pay an equal amount of money to an accountant or attorney than pay taxes to the federal government. c. The taxpayer has a large capital loss carryforward from last year. Solution: a. This is primarily a nontax factor situation. The taxpayer has specified that he or she is risk averse, a personal choice, due to having experienced prior losses. b. The taxpayer’s dislike of paying taxes is really a nontax factor; this dislike, however, leads him to seek income tax advice to reduce taxes and he is willing to pay significant amounts of money...
Words: 9117 - Pages: 37
... . . . . . . . . . . . . . . 2 Cat. No. 13081F Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 How To Depreciate Property Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 •Section 179 Deduction •Special Depreciation Allowance •MACRS •Listed Property For use in preparing 2014 Returns Chapter 1. Overview of Depreciation . . . . What Property Can Be Depreciated? . . . . What Property Cannot Be Depreciated? . . When Does Depreciation Begin and End? What Method Can You Use To Depreciate Your Property? . . . . . . . . . . . . . . . . . . What Is the Basis of Your Depreciable Property? . . . . . . . . . . . . . . . . . . . . . . How Do You Treat Repairs and Improvements? . . . . . . . . . . . . . . . . . Do You Have To File Form 4562? . . . . . . How Do You Correct Depreciation Deductions? . . . . . . . . . . . . . . . . . . . . Chapter 2. Electing the Section 179 Deduction . . . . . . . . . . . . . . . . . . . . . . . What Property Qualifies? . . . . . . . . . . . . . What Property Does Not Qualify? . . . . . . How Much Can You Deduct? . . . . . . . . . . How Do You Elect the Deduction? . . . . . . When Must You Recapture the Deduction? . . . . . . . . . . . . Feb 27, 2015 . . . . 3 4 6 7 . . . . . 11 . . . . . 13 . . . . . 13 . . . . . 13 . . . . . Chapter 4. Figuring Depreciation Under MACRS . . . . . . . . . . . . . . . . . . . . . . ...
Words: 85590 - Pages: 343
...grown to over 45 million. Health care has become increasingly unaffordable for business and individuals. We can eliminate wasteful inefficiencies such as duplicate paper work, claim approval, insurance submission, etc. Medical professionals can concentrate on healing the patient rather than on insurance procedures, malpractice liability, etc. Free medical services would encourage patient to practice preventive medicine and inquire about problems early when treatment will be light; currently patients often avoid physicals and other preventive measure because of the costs. Cons of universal health care are there is not a single government agency or division that runs efficiently; do we really want an organization that developed the U.S. Tax Code handling something as complex as health care? Free health care is not really free since we must pay for it with taxes, expenses for health care would have to be paid for with higher taxes or spending cuts in other areas such as defense, education, etc. Profit motives, competition, and individual ingenuity have always led to greater cost control and effectiveness. (Balanced Politics, 2009) Health care experts for the World Health organization tried to do a statistical ranking of the world’s health care system. They studied 191 countries and ranked them on things like the number of year’s people lived in...
Words: 2834 - Pages: 12
...is owned solely by a single individual. There are no other business partners. There are no board members. There are no stock holders. There are no department heads. The owner does not have to confer with anyone else regarding any decisions being made. The owner of the business and the business itself is viewed upon as one. As the sole proprietor of the business, the business owner is responsible for the day to day operations to include the financial success or failure of the business. As the sole proprietor of the business, profits as well as losses pass through the sole owner. This means that all income is reported to the IRS as additional income. As the sole owner of the business, the business owner is also responsible for paying federal income taxes, just as an individual does. This is required for tax purposes. This is also a benefit as the sole proprietor can take advantage of tax breaks. The sole proprietor has all the rights to retain profits and assets gained. As the sole proprietorship, there is no limit to the liability and due to limited government control, being a sole proprietor is one of the simplest businesses to start up. Because a sole proprietor is an unincorporated business, overall control falls solely on the owner of the business. If the owner decides to move to another location/state, he/she does not have to confer with anyone else; however, he/she will have to follow the requirements of that state. In the matter of regulations, licensing and permits, this...
Words: 3535 - Pages: 15
...TAXATION – power inherent in every sovereign State to impose a charge or burden upon persons, properties, or rights to raise revenues for the use and support of the government to enable it to discharge its appropriate functions SCOPE OF TAXATION TAXATION IS: Unlimited, Far-reaching, Plenary Comprehensive Supreme STAGES OF TAXATION: (LAP) 1. Levy 2. Assessment 3. Payment Basic Principles of a Sound Tax System 1. Fiscal Adequacy 2. Theoretical Justice 3. Administrative Feasibility INHERENT LIMITATIONS (SPING) 1) Situs or territoriality of taxation 2) Must be for a Public purpose • Test is whether proceeds will be used for something which is the duty of the State to provide. • Legislature is not required to adopt a policy of “all or none.” • Incidental benefit to individual does not defeat exemption 3) International comity • Property of a foreign State of government may not be taxed by another 4) Non-delegability of the taxing power • Contemplates power to QuickTime™ and a TIFF (Uncompressed) decompressor determine kind,thisobject, extent, are needed to see picture. amount, coverage, and situs of tax; • Distinguish from power to assess and collect • Exemptions: (a) presidential taxing powers; (b) local governments 5) Exemptions of Government agencies • Taking money from one pocket • to the other Applies only to entities exercising government functions (acta jure imperii) CONSTITUTIONAL LIMITATIONS A. Direct 1) Due process • Should not be harsh, oppressive, or confiscatory (Substantive)...
Words: 81188 - Pages: 325
...after your completion of the course. Students to do so may be subject to sanctions pursuant to DeVry’s academic integrity policy, even though they may no longer be enrolled in Accounting 429. Week 3 Research Project (Set #1) DeVry University Acct 429 Performing tax research is an important part of tax practice. As outlined in Chapter 2 of your textbook, tax law is developed through a number of different governmental entities. Congress enacts the tax Code as statutory law. The Treasury Department is tasked with the implementation of the tax Code and, in the course of doing so, develops a number of documents and materials to aid taxpayers in understanding the Treasury Department's interpretation of the code, including the Regulations. In turn, the Internal Revenue Service ("IRS”) has the direct responsibility for implementing the tax Code and in assessing and collecting the applicable tax from taxpayers. In the course of its duties, it also develops a number of materials, including Revenue Rulings, Revenue Procedures, and Private Letter Rulings, in which it sets forth its understanding of the tax laws. Finally, the federal courts decide tax cases in which taxpayers contest the government's interpretation of the tax laws. In deciding these cases, the...
Words: 32698 - Pages: 131
...Romanian Tax Pocket Book 2011 Edition TaxOnline.ro is the online solution that brings PwC professional tax services to the internet. We invite you to visit the website (www.taxonline.ro) and to enrol for a FREE 30-day trial to We invite you to visit the website (www.taxonline.ro) and to enrol for a FREE 30-day trial to our PREMIUM our PREMIUM subscription. After the expiry of the free trial period, access can be available for subscription. After the expiry of the free trial period, access can be available for the following types of the following types of subscriptions: subscriptions: STANDARD subscription - FREE STANDARD subscription - FREE TaxOnline.ro is the online solution that brings PwC professional tax services to the internet. • Daily Tax Update & Tax and Legal Alerts Daily Tax Update & Tax and Legal Alerts • Romanian, EUEU and Intl taxation regulatory section Romanian, and Intl taxation - - regulatory section Read only access to the TaxOnline Forum • Read only access to the TaxOnline Forum PREMIUM subscription Access to analysis and opinions of of our consultants on hot taxissues Access to analysis and opinions our consultants on hot tax issues Ability to a question online and receive a a response from our PwC consultants Ability to askask a question online and receive response from our PwC tax consultants FullFull participation our TaxOnline Forum participation in in our TaxOnline Forum Daily Tax Update & Tax and Legal Alerts Daily Tax Update & Tax and Legal...
Words: 25399 - Pages: 102
...Social stratification exists in America because the wealth and power belongs to a small portion of the population. Wealthy people possess an enormous amount of power over the political system and are held in high esteem by our society. There is a general feeling that those who are wealthy and powerful are superior to the average person. Social stratification involves not only socio-economic inequality, but the belief system held by people in America. A stratified society exists when there is an unequal distribution of wealth, power and prestige. In American society, political power and wealth are not distributed equally (Johnson, 1996). Paul Krugman is an economist and author of the book, 'The Spiral of Inequality' (1996). Krugman believes corporate greed, the decline of organized labor and changes in the way goods are produced are the causes of the growing social and economic inequality in the United States (Anderson, 2003). There is an unspoken general agreement in America that certain occupations deserve higher wages and more respect. Professions, such as physicians, lawyers, athletes and actors, are held in high esteem, whereas custodians, waitresses and trash collectors are considered professions that are not worthy of respect or praise and require minimal skill or intelligence. America most definitely needs skilled physicians and lawyers, but it also needs custodians, trash collectors and others who perform much needed tasks in order for society to thrive and function...
Words: 3589 - Pages: 15
