New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Chapter 1 Notes

by: Victoria Andreski

Chapter 1 Notes ACCT 404

Victoria Andreski
View Full Document for 0 Karma

View Full Document


Unlock These Notes for FREE

Enter your email below and we will instantly email you these Notes for Individual Taxation

(Limited time offer)

Unlock Notes

Already have a StudySoup account? Login here

Unlock FREE Class Notes

Enter your email below to receive Individual Taxation notes

Everyone needs better class notes. Enter your email and we will send you notes for this class for free.

Unlock FREE notes

About this Document

An Introduction to Tax notes
Individual Taxation
Sarah Martin
Class Notes




Popular in Individual Taxation

Popular in Accounting

This 4 page Class Notes was uploaded by Victoria Andreski on Wednesday January 13, 2016. The Class Notes belongs to ACCT 404 at Clemson University taught by Sarah Martin in Spring 2016. Since its upload, it has received 75 views. For similar materials see Individual Taxation in Accounting at Clemson University.


Reviews for Chapter 1 Notes


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 01/13/16
Chapter 1—An Introduction to Tax  Who cares about taxes? o Businesses o Politicians o Individuals  What is a tax? o Tax—a payment that a government agency (federal, state, local)  requires that is NOT related to related to the service/benefit  received  o Requirements  1) Payment required  2) Payment enforced by government agency  Federal, state, local  3) Payment is not directly related to benefit(s) received by  taxpayer o Purpose—to fund government operationsraise revenue  Are NOT intended to punish individuals or prevent them from taking part in illegal behavior o Earmarked tax—a tax charged for a particular purpose o Sin tax—levy surcharges on products like tobacco & alcohol   Examples of Taxes o Local school taxes o Gas tax o Vehicle registration taxes  Examples of Fees o Business registration tax o Fishing license o License plate fees  o Building permit tax o Marriage licenses o Sewer & water taxes  How do you calculate a tax? o Tax = Tax Base X Tax Rate  Tax Base—what is actually taxed (monetary terms)  Tax Rate—level of taxes levied on tax base (%)  Ways to measure tax rates o Marginal tax rate—tax rate applied to taxpayer’s additional block of  taxable income  Marginal Tax Rate = Change in Tax ÷ Change in Taxable  Income  Additional income can push a taxpayer into a higher tax  bracket which would change the marginal tax rate  Not all income is taxed at marginal rate o Average tax rate—how much of each dollar of taxable income is  used to pay taxes  Average Tax Rate = Total Tax ÷ Taxable Income o Effective tax rate—total tax paid as a ratio of taxable & nontaxable  income earned  Effective Tax Rate = Total Tax ÷ Total Income  Most usefulbetter picture of a taxpayer’s tax burden  Tax Rate Structures o    Proportional Tax Rate  aka Flat Tax  Constant tax rate—same tax rate no matter how much you  buy  As the tax bases increases, the tax paid increases  proportionately  Example: Sales Tax o    Progressive Tax Rate  Marginal tax rate increases as tax base increases  The higher your taxable income, the higher the tax rate  Average rate will always be ≤ marginal rate  Example: Federal & State Income Taxes o Regressive Tax Rate  As tax base increases, marginal rate decreases  Not a common tax rate structure  Examples: Social Security Tax & Federal/State  Unemployment Taxes  Types of Taxes o    Federal Taxes  First enacted in 1861 to fund Civil War  1892 enacted again by Congress, challenged as  unconstitutional (direct taxes were prohibited)  February 1913, 16  amendment ratified, allowing Federal  gov’t to enact Federal Income Tax     Income Taxes Imposed on individuals, corporations, estates, trusts     Employmend & Unemployment Taxes 2  largest group of taxes Employment taxes: o OASDI—Old Age, Survivors, & Disability  Insurance Tax Social Security (6.2%)  Mirror tax: both employer & employee  pay it o MHI—Medical Health Insurance Medicare  Tax (1.45%)  Mirror tax  Unemployment taxes o Fund temporary unemployment benefits o Only employers pay o The lower the turnover employers have, the  lower the unemployment tax rate     Excise Taxes Imposed on quantity of products sold/purchased o NOT the value  o Example: # of gallons of gas     Estate & Gift Taxes Taxed on Fair Market Value of wealth transfers by  death or gift aka Transfer Taxes o    State & Local Taxes  Most states have personal income tax  States without: Alaska, Florida, Nevada, South Dakota, Texas,  Washington, Wyoming, Tennessee, New Hampshire  Sales & Use Taxes  Sales Tax o Tax base= retail sales of goods/services  Use Tax o Tax base= retail price of goods owned,  possessed, or consumed within a state not  purchased within the state o Mirror image of sales tax     Property Taxes Ad valorem taxes—based on FMV of property Real property—land, buildings, & things permanently  attached to land Personal property—all other types of property o Examples: boat, car, business equipment,  furniture (tangible); stocks, bonds, intellectual  property (intangible)     Income Taxes Conform w/ federal taxable income taxes     Excise Taxes Examples: gasoline, cigarettes, diesel fuel, telephone o    Implicit Taxes  Indirect taxes from tax advantages gov’t gives for certain  transactions   Challenging to quantify  Tax benefits drive up the price How to evaluate different tax systems? o    Sufficiency  Does tax generate enough tax revenue to support gov’t  functions?     Static: ignore how taxpayers change their activities as a  result of tax law change & base projected tax on existing  state of transactions     Dynamic: attempts to predict possible taxpayer responses to tax law change   Income Effect people will work harder to maintain  same after­tax income when tax rates increase    Substitution Effect people will substitute nontaxable  activities when tax rates increase because marginal  value of taxable activities has decreased o    Equity  Fairness of the tax  Tax should be based on your ability to pay Horizontal Equity 2 taxpayers in similar situation pay the same tax Vertical Equity taxpayer w/ greater ability to pay,  pays more in comparison to taxpayers w/ less ability  to pay o    Certainty  Taxpayer determines when, where, & how to pay tax  Are income taxes too complex for the average taxpayer? o    Convenience   Tax system designed to be collected without undue hardship to taxpayer/gov’t  Tie the collection of the tax as closely as possible to the  transaction that generates it o    Economy   Minimize compliance & administrative costs


Buy Material

Are you sure you want to buy this material for

0 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Jennifer McGill UCSF Med School

"Selling my MCAT study guides and notes has been a great source of side revenue while I'm in school. Some months I'm making over $500! Plus, it makes me happy knowing that I'm helping future med students with their MCAT."

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.