Taxation of Businesses
Taxation of Businesses ACTG 617
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This 7 page Class Notes was uploaded by Julien Weber on Tuesday September 8, 2015. The Class Notes belongs to ACTG 617 at University of Oregon taught by Staff in Fall. Since its upload, it has received 64 views. For similar materials see /class/187290/actg-617-university-of-oregon in Accounting at University of Oregon.
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Date Created: 09/08/15
A note to you These are my notes and I am happy to share them with you They are not meant to be complete and they are not perfect They are a work in progress always Enjoy hg Chapter 1 An introduction to taxation Key Concepts 0 Only individuals C corporations and fiduciaries pay income taxes 0 Corporations are taxed on taxable income which is the difference between gross income and deductions The nominal tax rates for corporations vary from 15 to 35 percent In determining taxable income individuals are allowed two sets of deductions from gross income 7 deductions for adjusted gross income and deductions from adjusted gross income They are also allowed to deduct personal dependency exemptions Individual tax rates vary from 10 to 35 percent Sole proprietorships partnerships and S corporations are all business entities whose income and losses are passed through to owners and included in owners tax returns for payment of income taxes Other taxes levied by governmental units include sales or use taxes wealth or property taxes and wealth transfer taxes 1 An introduction to taxation a What is a tax You must pay them but they might not bene t you b History of income taxation in the United States 1913 16th amendment gave Congress the power to tax income from whatever source derived 1939 Internal Revenue Code 1954 1986 c Let s list a few objectives of taxation Raising revenue Horizontal equity Vertical equity d Current in uences on the tax law 2 Taxing units and basic income tax models Only individuals C Corporations and fiduciaries estates and trusts pay federal income taxes A business may be organized as a sole proprietorship a partnership a limited liability partnership LLP a limited liability company LLC an S corporation or a C corporation The income of C corporations is subject to double taxation once at the corporate level and again at the owner level when the income is distributed as dividends to the owners a Tax formula for a C corporation Corporate tax is covered in Actg 617 a Master of Accounting class We will do a little bit of work with corporations but not much as we do not have the time Tax formula for an individual b Gross income Inclusions on Page 7 of your text Exclusions on Page 8 of your text Losses business losses investment losses and personal losses c Property transactions Amount realized Adjusted basis GainLoss Realized Whether or not this gainloss is recognized depends on the tax law d Deductions The ordinary necessary and reasonable expenses of carrying on a trade or business are deductible Fines bribes and expenses related to taxexempt income are not deductible expenses Individuals have deductions for above the line and deductions from below the line Page 10 of your text Standard deduction For 2004 is MFJ 9700 and for S 4850 or itemized CANNOT TAKE THE STANDARD AND ITEMIZE IN THE SAME YEAR Personal and dependency exemption for 2004 it is 3100 e Determining the gross tax liability pages 12 and 13 f Tax losses Net operating losses can be carried back 2 years or forward 20 g Additions to the tax liability Alternative minimum tax Selfemployment taxes social security and Medicare h Tax prepayments and credits Taxes withheld Estimated tax payments Tax credits on page 15 3 Choice of business entity For tax return purposes there are only four types of business entities Sole proprietorship income reported on Schedule C of indiVidual 1040 due April 15 Partnership les an information return 1065 due April 15 C Corporation 1120 due March 15 S Corporation les an information return 1120S due March 15 a Sole proprietorship sole pro Simple No employees or lots of employees Owner is not considered an employee Owner is considered self employed and must pay self employment tax Owner is not eligible for taxfree employee fringe benefits Tax return package would include Schedule C SE and 1040 Tax is based on net profits of the business not cash ow Schedule C loss can offset taxpayer s other income A sole pro is not a separate entity from its owner b Partnerships covered in Actg 617 Consists of 2 or more individuals or entities that join together to carry on a business General partners have unlimited liability for ship debts Partners cannot be employees of their own ship Ship is a conduit Losses ow to owners Taxed on income whether or not receive any cash Basis measures partner s investment in the ship c Corporations covered in Actg 617 Limited liability Stock represents ownership Shareholder can be an employee and receive fringe bene ts Double taX corporation pays income tax and shareholders pay income taX again on dividends Dividends are not deductible by corporation d S Corp covered in Actg 617 No more than 75 shareholders Conduit A more than 2 shareholder cannot participate in fringe bene ts Losses ow to owners Chart on page 20 is very helpful 4 Other types of taxes Wealth Wealth transfer Consumption Tariffs and duties 5 Types of taX rate systems Progressive Proportional Regressive 6 Characteristics of a good taX Equity Economy Certainty Convenience