MGMT 504 Chapter 1 Book Notes
MGMT 504 Chapter 1 Book Notes MGMT 504
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This 4 page Reader was uploaded by Emily McIlhattan on Wednesday January 21, 2015. The Reader belongs to MGMT 504 at Purdue University taught by Jason Stanfield in Winter2015. Since its upload, it has received 333 views. For similar materials see Tax Accounting in Accounting at Purdue University.
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Date Created: 01/21/15
MGMT 5 4 Chapter 1 Book Notes 0 9 Tax payment required by a government that is unrelated to any speci c bene t or service received form the government purpose is to fund the operations of the government raise revenues Payment is required Payment is imposed by the government Payment is not tied directly to the bene t received by the taxpayer gt Sin taxes impose relatively high surcharges on alcohol and tobacco products Affordable Care Act shared responsibility payment imposed on those who do not have minimum essential health care coverage gt Earmarked Tax a tax that is assessed for a speci c purpose Key Equation Tax Tax Base Tax rate gt Tax base what is actually taxed and is usually expressed in monetary terms gt Tax rate determines the level of taxes imposed on the tax base and is usually expressed as a percentage 0 Flat tax a single tax applied to an entire base Graduated taxes base is divided into a series of monetary amounts brackets and each successive bracket is taxed at a different gradually higher or lower percentage rate Marginal tax rate MTR tax rate applied to the next additional increment of a taxpayer s income change in tax change in taxable income new total tax old total tax newold Represents the rate of taxation or savings that would apply to additional taxable income Average Tax rate taxpayer s average level of taxation on each dollar of taxable income gt total taxtaxable income Effective tax rate represents the taxpayers average rate of taxation on each dollar of total income economic income including both taxable and nontaxable income gt total tax total income oz Proportional tax rate structure at tax imposes a constant tax rate throughout the tax base as the tax increases the taxes paid increase proportionally MTR ATR Sales tax ex oz Progressive tax rate structure imposes an increasing MTR as the tax base increases federal and state income taxes oz Regressive decreasing MTR as the tax base increases as tax base increases taxes paid increases but MTR decreases Social Security Tax not common Types of Taxes oz Federal Taxes national defense social security interstate highway system educational programs Medicare gt gt gt gt Income Tax 4744 of all taxes EmploymentUnemployment tax Excise Taxes taxes levied on the retail sale of particular products the tax base for an excise tax typically depends on the quantity purchased rather than a monetary amount Transfer taxes estate and gift taxes State and Local gt gt lncome typically a progressive tax Sales retail sales of goods and some services and retailers are responsible for collecting and remitting the tax at the point of sale Use tax retail price of goods owned possessed or consumed with a state that were not purchases within the state Property taxes real and personal ad valorem taxes the tax base is the fair market value of the property and both are generally collected annually Excise typically proportional tax structure state excise taxes would be on the sale of alcohol diesel fuel tobacco products and telephone services lmplicit indirect taxes result form tax advantage the government grants to certain transactions to satisfy social economic or other objectives Sufficiency assessing the size of the tax revenues it must generate and ensuring that it provides them a successful tax system must provide sufficient revenues to pay for governmental expenditures for a defense system social services etc Static forecasting ignoring how taxpayers may alter their activities response to a tax law change and to base projected tax revenues on the existing state of transactions this may result in a large discrepancy in projected vs actual tax revenues gt Static forecasting can lead to a tax consequence opposite the desired outcome oz Dynamic forecasting account for possible taxpayer responses to the tax law A progressive tax such as the income tax can have one of two responses when the tax based is increased or tax rate is expanded Income Effect when taxpayers are taxed more they will work harder to generate the same aftertax dollars Substitution Effect when taxpayers are taxed more they will substitute nontaxable activities like leisure pursuits for taxable ones gt If a tax system fails to generate sufficient revenues the government must seek other sources to pay for governmental expenditures 9 From Issuance of treasury bonds 9 Default on its debt really bad consequences 9 Best option match revenues with expenses and not have a de c oz Equity or fairness heart of this issue inherently it is subject to personal interpretation no one size ts all category gt General terms a tax system is considered fair or equitable if the tax is based on the taxpayers ability to pay taxpayers with a greater ability to pay tax pay more tax equity is more complex than this in reality however Horizontal Equity two taxpayers in similar situations pay the same tax ie two tax payers with the same taxable income same purchases same value of property and same estate value pay the same federal income tax sales tax and property tax and estate tax Exceonns Two people with the same income may not pay the same federal income tax if one individuals income was earned as salary and the other s income is earned in taxexempt municipal bonds dividend income or capital gains income Two people with the same dollar amount of purchases may not pay the same sales tax if one buys a higher proportion of goods that are subject to lower sales tax groceries If one owns farmland and the other doesn t there are different property taxes Different estate taxes if one bequeaths their estate to charity or their spouse rather than their heirs Vertical Equity achieved when taxpayers with greater ability to pay tax pay more tax than taxpayers with less ability to pay thought of in either tax dollars or rates 9 Focusing on the tax rate is only appropriate if the tax base accurately portrays that persons ability to pay 9 Regressive tax structures are generally considered NOT to satisfy vertical equity gt Certainty taxpayers should be able to determine when to pay the tax where to pay the tax and how to determine it gt Convenience a tax system should be designed to facilitate the collection of tax revenues without undue hardship on the taxpayer or the government gt Economy a good tax system should minimize the compliance and administration costs associated with the tax system from a governmental perspective most tax systems fair well in terms of economy oz Main tradeoff simplicity and fairness simpler taxes and easier to administer sales tax are generally viewed as less fair
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