...Chapter 3 Understanding Financial Statements, Taxes, and Cash Flows 3-1. To find the net income, we must subtract all relevant expenses from revenues: cost of goods sold, operating expenses, interest, and taxes. Following the template from Checkpoint 3.1, we find the following for Sandifer Manufacturing Company: [pic] Sandifer was able to generate $438,750 in net income from its sales of $4.5M. The $438,750 is now available to pay out to shareholders (dividends), and/or to reinvest in the business (retained earnings). 3-2. We just learned (in Problem 3-1) that Sandifer has $438,750 to allocate to dividends and reinvestment. If it chooses to reinvest $50,000, then it will have ($438,750 − $50,000) ’ $388,750 to pay out as dividends (a [$388,750/$438,750] ’ 88.6% payout ratio). 3-3. Marifield Steel Fabrication earned net income of $500,000, then paid out a dividend of $300,000. This left ($500,000 − $300,000) ’ $200,000 to be retained by the firm to finance growth. However, earnings per share is based on net income, not reinvested earnings. Thus, the firm’s EPS is: [pic] 3-4. Barrington Enterprises earned $4M in taxable income. Using the corporate tax rates given in Section 3.3 of the chapter, we find the following: [pic] Barrington’s total tax liability is $1,360,000, for an average tax rate of ($1,360,000/$4,000,000) ’ 34%. The chart above is very close to that in Section 3.3. However, we will explain the...
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...Norway For the Tax Planning Considerations for Employees By Alexis A. Rutherford Introduction A common priority for any business owner is attempting to reduce their tax liability during their peak earnings and profits during the years. The hiring, spending, savings and growing will help the business. Any United Stated company contemplating doing business abroad should select a structure which maximizes flexibility, minimizes tax and avoid the complexity. In the case of USco contemplating expanding its operations overseas would definitely increase the business and offer opportunities to overseas market that have not been taped into has of yet. Now what the CEO of USco would have to be concerned with when it comes to expansion of his business overseas would be to look at the type of expansion, the impact it would have on his current employees and the tax implications effect that would affect his employees. Now for the CEO of USco we must look at the country of Norway which seems to have all the areas of helping with the expansion of the manufacturing business. In this paper we will reflect on the first the effects on the tax planning consideration for his employees expanding overseas. We will look at how the treaty between Norway and the United States will affect any benefits for employees that will be working there. We will also look at are there credits they may be entitled to , if the payroll of how they receive their income will be better in...
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...The purpose of this paper is to briefly describe the economic problem of tax reform in the United States of America. First, I will give a description of tax reform in the United States of America. Second, I will assess the impact the problem poses to society. Third, I will design an economic policy solution to the problem. Fourth, I will analyze the economic theory used to complete the policy solution and determine the impact on the appropriate stakeholders. Last, I will analyze how the economic policy proposed would solve the economic problem. Tax reform is the process of changing the way taxes are collected or managed by the government. Tax reformers have many different goals. Some seek to make the tax system more progressive or less progressive. Others want to simplify the tax system and make it more understandable or more accountable. In the United States, it is required for working citizens to pay taxes. Taxes are generated from an individual’s income or from sales. These taxes go towards the local, state, and federal government. The purpose of taxes is to fund the government, the military, and services to low-income families. Programs such as food stamps, housing, Social Security, public school, and healthcare are available due to taxes. The tax system is based on the “ability to pay.” As an individual’s income increases, so does their taxable income rate. The current economic situation of the United States can be blamed on a multitude of variables and is the fault of...
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...my paycheck money has already been deducted for such taxes as FICA, state, federal and local. Week after week I see more of my earnings taken away. I would like to see a tax system in place that has less loopholes, is easier to understand and is fairer to all working Americans. Our current progressive tax system effectively redistributes income. This means those who earn more pay higher taxes while those who earn less pay less tax. In a way this does seem fair because it closes some of the wealth gaps. The taxes collected by the government are used to fund social programs such as social security, social welfare and public assistance. This is beneficial to struggling families because it allows them to have more money to pay bills and buy necessary products. This system also benefits the wealthy because they have the potential to make more money when the economy is good. Another benefit of the progressive tax system is the continuous flow of money into the economy. A wealthy person will continue to spend money regardless of the amount of money he/she pays in taxes. According to Calvin Wolf “it is better to tax the wealthy more because they can afford to continue stimulating the economy even with a heavy tax burden; this helps the economy function more effectively. Poor people, who cannot handle a heavy tax burden, should be freed up to spend as much of their money in the consumer economy as possible. (Wolf C. , 2013) On the other hand this...
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...Income is a flow of earnings from a stock of capital. Income is earned in the form of wages, interest from savings, dividends from shares, income from pensions or rent from properties. This means that the more capital you have (such as shares savings or property) the more income you get from them. This means that not everybody gets the same income and there are a lot of people that do not get enough. The amount of people currently living below the poverty line is 20 million across the EU. This means that there are a lot of people that are unable to support themselves on the income that they get. This is why the government intervenes and either redistributed the income in the forms of taxes and benefits or they use supply side policies to try and encourage people into higher earning jobs. Redistributing income can be done in several ways; it can be done through a progressive tax system, tax credits or wealth taxes or benefits. A system of progressive direct taxation can reduce income disparities and if combined with a high level of government spending on benefits can achieve income redistribution. In the UK the highest rate of income tax is 45% for those earning more than £150’000 and the lowest income tax rate is the ‘basic rate’ at 20% for earnings of £10’600 to £31’785. The problem that is caused for those taxed and those on benefits is the disincentive effect. Those on higher incomes may decide to work less so that they do not reach the next tax bracket, or take higher incomes...
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...progressive political philosophy and governing agenda for America based on individual liberty, equal opportunity, civic responsibility, and nonbureaucratic governance. The substantive work of the Foundation revolves around some of the most difficult challenges facing America in the 1990s: assuring upward mobility for working Americans in the new world economy; resolving the great American dilemma of race; restoring a civil society and strengthening the social ties that foster a sense of community; finding America’s proper role in the post-Cold War world; and rethinking the size, shape, and mission of government in an Information Age. The Foundation explores public controversies over cultural questions—race, ethnicity, gender, religion, morality, and civic education—that are often ignored in conventional political discourse. The Foundation’s Project on Tax Reform and Economic Growth works to develop a tax reform program that is consistent with a progressive distribution of the tax burden, and can help promote stronger job and business formation, greater productivity, and higher family incomes. This report is the first of two new reports outlining the essential features of such a tax reform program. The preface contains more information about the four previous reports produced by this project. To order previous reports or additional copies of this report, please call the Foundation at (202) 546-4482. They are also available on the World Wide Web at http:/ /www.dlcppi.org/economic.htm. The...
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...research about tax planning and ways to save tax for both individual taxpayers and business owners. There are many different types of tax planning that can be beneficial for all taxpayers. Besides that, by researching of ways to help individual taxpayers and business owners to save tax, I have learnt that there are many tax exemptions such as medical, dental, and childcare benefits. Moreover, the government has provided taxpayers with many tax reliefs such as personal relief, wife relief, child relief, medical expenses relief and so many more to help reduce the chargeable income of individual taxpayers. Furthermore, the government also provides tax rebates for individual taxpayers as well. By applying all the knowledge gain into tax planning, taxpayers will be well equipped in managing their taxes and will be able to make prompt payment and be able to fully utilize all the different ways for them to save on tax. Task 1 : Explain what tax planning is. 1.1: Meaning of Tax Planning Tax planning involves planning in order to avail all exemptions, deductions, and rebated provided in Act. The Income tax law itself provides for various methods for tax planning. Tax planning, whether personal or company, are interrelated and integrate part of the planning process. Generally it is provided under tax exemptions, tax deductions, personal rebates and personal reliefs. Tax planning is resorted to maximize the cash inflow and minimize the cash outflow. Since tax is kind of cost...
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...living below a certain income threshold or the number of households unable to afford certain basic goods and services. Whereas, Relative poverty measures the extent to which a household's financial resources falls below an average income threshold for the economy. Although living standards and real incomes have grown because of higher employment and sustained economic growth over recent years, the gains in income and wealth have been unevenly distributed across the population. Poverty is caused by both a low real national income relative to a to a countries total population size and by inequalities in the distributions of income and wealth. The former leads to absolute poverty for most of a countries inhabitants, whereas the latter causes relative poverty. Discussions surrounding poverty in the United Kingdom tend to be of relative poverty rather than absolute poverty. The poverty trap affects people on low incomes. It creates a disincentive to look for work or work longer hours because of the effects of the tax and benefits system. For example, a worker might be given the opportunity to earn an extra 50 a week by working ten additional hours. This boost to his/her gross income is reduced by an increase in income tax and national insurance contributions. The individual may also lose some income-related state benefits. The combined effects of this might be to take away over 70% of a rise in income, leaving little in the way of extra net or disposable income. Disparities in...
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...Date: November 25, 2012 RE: 2011 Tax Strategy Dear John and Jane, Thank you for the opportunity to work on your behalf for tax preparation this year. Per our previous discussion, I have prepared this memo as a preliminary work on this year’s tax strategy. The three main sections are constructed according to inquiries made by each of you individually and, then, to conclude on the options available for you both and my recommendation. 1. John Smith tax issues a) The $300,000 of attorney’s fee should be included in gross income and subject to federal and state tax. The Internal Revenue Code Section 61 (IRC 61, 26 U.S.C. § 61) defines gross income as all income from whatever source derived. Section 61 also lists examples of items that are taxable under the Code, which includes "Compensation for services, including fees, commissions, fringe benefits, and similar items"1. The $300,000 belongs to this income category. Since you’ve been working on the case for over two years, you can split the $300,000 and allocate them into the years you’ve been actually working on the case. By doing that, you can lower your annual gross income, and you may be able to put yourself in a lower tax rate bracket. b) The $25,000 is paid upfront by your client to cover the expenses. Although the payment is to cover your business expense, it should still be considered as a type of compensation for your services. The $25,000 should be added to gross income. However, same as the service fee...
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...See information on website for revisions to key tables and graphs Contact Bryan Perry at bryan.perry001@msd.govt.nz for further information Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2012 Prepared by Bryan Perry Ministry of Social Development Wellington July 2013 ISBN 978-0-478-33569-9 (Print) ISBN 978-0-478-33570-5 (Online) Changes since last report • The report is updated with findings based on the 2011-12 Household Economic Survey (referred to as the 2012 HES). • Information on poverty rates by highest household educational qualification has been added. • The international comparisons are updated with the latest available data (usually 2010 or 2011), and expanded to include the share ratio for the top decile compared with the bottom decile plus more detail on the income share of those receiving high or very high incomes. • A special section is included which upgrades and updates the New Zealand information in a recent OECD report on the impact of the Global Financial Crisis on household incomes across OECD countries. • The material hardship section (Section K) has been strengthened. Next report • The next report is scheduled for mid 2014 based on the 2012-13 HES. (The timing is dependent on the availability of the HES data.) Availability on MSD website • This report and previous ones are available on the MSD website: ...
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...AGENDA: CAPITAL BUDGETING DECISIONS A. Present value concepts. 1. Interest calculations. 2. Present value tables. B. Net present value method. C. Internal rate of return method. D. Cost of capital as a screening tool. E. Further aspects of the net present value method. 1. Total-cost approach. 2. Incremental-cost approach. 3. Least-cost decisions. F. Uncertain future cash flows. G. Preference rankings. H. Payback period method. I. Simple rate of return method. J. (Appendix 14C) Income taxes in capital budgeting PRESENT VALUE CONCEPTS A dollar today is worth more than a dollar a year from now because a dollar received today can be invested, yielding more than a dollar a year from now. MATHEMATICS OF INTEREST If P dollars are invested today at the annual interest rate r, then in n years you would have Fn dollars computed as follows: Fn = P(1 + r)n EXAMPLE: If $100 is invested today at 8% interest, how much will the investment be worth in two years? F2 = $100(1 + 0.08)2 F2 = $116.64 The $100 investment earns $16.64 in interest over the two years as follows: |Original deposit |$100.00 | |Interest—first year ($100 × 0.08) | 8.00 | |Total |108.00 | |Interest—second...
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...Introduction In 2014 14.8 percent of the United States population, 46.7 million people, were living at or below the federal poverty level (Census, 2014). As the income gap continues to widen, policy makers debate which policies best serve the American people by effectively raising the incomes of the poor. Many politicians argue that raising the minimum wage best increases the incomes of the working poor. However, others believe that increasing the earned income tax credit (EITC) best provides financial relief to low income families, while still others believe neither policy is necessary. This paper examines the costs and benefits of a Kentucky state-level minimum wage increase, a state-level EITC, and a combination of both. Discussion following...
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...general revenues is comprised of three programs. The Old Age Security (OAS) program includes the basic OAS pension, the Guaranteed Income Supplement (GIS), and the Allowance for Survivors.(social work) Old Age Security provides benefits to Canadian residents at the age of 65 and who have resided in Canada for more than 10 years after age 18. To receive the full monthly benefit of $540.12, an individual must have lived in Canada for a period of 40 or more years after the age of 18. OAS benefits are not dependant on paid employment or the income of a spouse or partner. Individuals who earn more than $69, 562 will have their OAS benefits “clawed back” and those with an income exceeding $122, 772 are not eligible to receive the OAS benefit. The Guaranteed Income Supplement provides benefits to low income seniors who are also receiving OAS. The federal government has recently introduced policy changes to the Old Age Security and (GIS) benefits, specifically increasing the age of eligibility from the current age of 65 to 67. These changes are to be fully implemented by the year 2029. As an advocate for low income seniors, the policy changes to the OAS/GIS eligibility requirements will be analysis and recommendations will be made that there is no financial reason to amend the Old Age Security Act and in doing so the adverse affects to lower income earners will be numerous. The Canadian government, under Conservative leadership, is reforming the Old Age Security Act with the goal...
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...amount or percentage of property tax revenue that comes from owners of Habitat for Humanity houses in a particular municipality. Discuss complexity of this activity. In order to properly asses the percentage of property tax revenue that comes from owners of Habitat for Humanity houses you must look at them as if they came from a “normal” house within that area. To calculate the property tax percentage, the city/county responsible for receiving the payments will take the assessed value of the property and multiply it by the mill rate. Afterwards they will divide it by 1,000 (Mikesell, 2010). The mileage rate (also known as the mill rate) is the amount of tax per thousand dollars of the property value. Based on the municipality of Northern Virginia, property owners in this area are assessed at a high rate. This in turn causes the owners to pay a higher property tax than homeowners in other parts of the state regardless of the financial stability or ability to pay the higher cost. In this activity the high property tax is not necessarily the problem, but the owners of homes bought through Habitat for Humanity, and their lack of financial resources to pay the property tax. In this area (Alexandria, VA), the local government does not distinguish between income of the individuals within a household, but the value of house. So Kesha James, who averages around $28,00 a year is barley able to make the monthly payments on her house whose property tax continues to rise. Two arguments...
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...their views on tax relief, trade, small business, and workplace flexibility and choice. Tax relief comprises an important aspect of the presidential candidates’ economic plans. McCain will keep the top tax rate at thirty-five percent. He believes small businesses are the center of job growth and raising taxes on small businesses will hurt many workers. He plans to cut the corporate tax from thirty-five to twenty-five percent. McCain believes that a competitive corporate tax is essential to keep good jobs in the United States. He also wants to allow a first-year deduction on equipment and technology investments. McCain believes that American workers need the finest technologies to compete with international businesses. In turn, this deduction will provide an immediate increase in capital expenditure and reward investments in cutting-edge technologies. McCain will also establish a permanent tax credit equal to ten percent of wages spent on research and development. Obama has a different approach to tax relief than McCain. Obama wants to provide a $1000 emergency rebate to American families. This relief is part of Obama’s long-term plan to provide middle-class families with at least $1000 per year in permanent tax relief. He also plans to provide $50 billion to jumpstart the economy in an effort to prevent one million Americans from losing their jobs. Obama refers to his tax cut for working families as “Making Work Pay.” This program will provide a tax credit of up...
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