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CHAPTER 16

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					Chapter 16

Individual Tax and Tax Planning




          Chapter 16: Individual Income
              Tax and Tax Planning
             Federal Income Tax Law
             Objectives
               Revenue-raising objectives
               Economic objectives
               Social objectives




Chapter 16: Individual Income
    Tax and Tax Planning                      2001, Dalton Publications, LLC
             Income Tax Planning
               Data Collection and Risk Analysis
                    Use a Client Questionnaire
                    Gather prior income tax returns
                    Gather information returns
                          Form W-2
                          Form 1098
                          Form 1099



Chapter 16: Individual Income
    Tax and Tax Planning                         2001, Dalton Publications, LLC
             Individual Income Tax Rates
               Ordinary rates
               Capital gain rates
                    Capital asset
                    Sale or exchange
                    Long-term holding period
               Alternative Minimum Tax (AMT) rates


Chapter 16: Individual Income
    Tax and Tax Planning                         2001, Dalton Publications, LLC
             Determining Income Tax
             Liability – Taxable Income
            Total Income
               Less: exclusions from gross income
            Gross Income
               Less: deductions for Adjusted Gross Income
            Adjusted Gross Income (AGI)
               Less the larger of:
                 Standard Deduction or Itemized Deductions
               Less: personal and dependency exemptions
            Taxable Income

Chapter 16: Individual Income
    Tax and Tax Planning                         2001, Dalton Publications, LLC
             Tax Avoidance vs. Tax Evasion
               Tax avoidance is the legal minimization
                of taxes

               Tax evasion is any of the fraudulent
                methods by which a taxpayer may pay
                less than his or her proper tax liability


Chapter 16: Individual Income
    Tax and Tax Planning                     2001, Dalton Publications, LLC
             The Internal Revenue Service
             and Its Administrative Issues
               The IRS
                    is part of the Treasury Department
                    is responsible for administering and
                     enforcing federal tax laws
                    issues Revenue Rulings and Revenue
                     Procedures as official interpretations of the
                     tax laws


Chapter 16: Individual Income
    Tax and Tax Planning                           2001, Dalton Publications, LLC
             IRS Guidance
               Letter rulings
               Determination letters
               Revenue rulings
               Private letter rulings
               Revenue procedures
               Technical advice memoranda

Chapter 16: Individual Income
    Tax and Tax Planning                 2001, Dalton Publications, LLC
             The IRS Audit Process
               The Discriminant Function System
               Types of Audits
                    Correspondence audit
                    Office audit
                    Field audit




Chapter 16: Individual Income
    Tax and Tax Planning                     2001, Dalton Publications, LLC
             The IRS Audit Process                     (cont’d)




               Outcomes of Audits
                    No change to return
                    Taxpayer agrees with examiner’s findings
                    Taxpayer does not agree with examiner’s findings
                    Taxpayer partially agrees with examiner’s findings


               If a taxpayer exhausts all administrative
                remedies, the case may be brought to court

Chapter 16: Individual Income
    Tax and Tax Planning                               2001, Dalton Publications, LLC
             The IRS Audit Process                   (cont’d)




               Penalties
                    Failure-to-file penalties
                    Failure-to-pay-tax penalties
                    Accuracy-related penalties
                    Fraud penalties




Chapter 16: Individual Income
    Tax and Tax Planning                             2001, Dalton Publications, LLC
             Payroll Taxes
               FICA taxes for employers and
                employees
               Self-employment tax
               FUTA tax calculation




Chapter 16: Individual Income
    Tax and Tax Planning                  2001, Dalton Publications, LLC
             Tax-Advantaged Investments
               Investment in tax-exempt securities
               Tax shelters
               Employee benefits
               Acceleration of deductions
               Deferral of tax gains
               Exemption opportunities

Chapter 16: Individual Income
    Tax and Tax Planning                   2001, Dalton Publications, LLC

				
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