Premium Essay

Federal Taxation

In: Other Topics

Submitted By qtbaby
Words 710
Pages 3
Research Problem 1
1. Discuss the different types of interests and the IRS rule related to the deductibility of each type for tax purposes. Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. There are different types of interests, including investment interest, qualified residence interest, student loan interest, and personal interest, which are either deductible or nondeductible. Personal interests are interests on car loans, credit cards, loans for appliances and furniture and interest on loans made by one person to another. Personal interest is nondeductible. If interest is paid on a qualified student loan, taxpayers may be able to deduct the interest as deduction for AGI. Generally, the allowable amount for student loan is lesser of $2,500 or the amount of interest taxpayer actually paid. Investment interest is interest paid on money borrowed to purchase or hold investment property. It is tax deductible on income tax return up to the amount of the net investment income. However, if the interest is incurred to produce tax exempt income, it cannot be deducted. Investment interest is not any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. The qualified residence interest is interest taxpayer pays on a loan secured by one’s main home or a second home. The loan may be a mortgage to buy primary home, a second mortgage, a home equity loan, or line of credit. The main home is where taxpayer lives most of the time. A second home is other residence taxpayer owns and treats as a second home. If the second home is rented, taxpayer must also use it as a home during the year for more than the greater of 14 days or 10% of the number of days it’s rented, for the interest to qualify as qualified residence interest. Home equity loan interest…...

Similar Documents

Premium Essay

Federal Taxation

...1 Tax Credits / Alternative Minimum Tax Federal Tax I Fall 2012 OVERVIEW: This handout summarizes the Tax Credits and Alternative Minimum Tax topics in chapter 7 of your textbook. These are the last topics we will be covering this semester, and as previously discussed I am providing this handout supplementing the material contained in your text due to the time we lost because of Storm Sandy. The material on Tax Credits is contained on pages 7-23 – 7-34 (11 pages) of your textbook. The material on AMT (Alternative Minimum Tax) is covered on pages 7-8 – 7-14 (7 pages). So this is only 18 pages of chapter 7. We covered the rest of chapter 7 earlier this semester prior to exam 2. Tax Credits: As you will recall from very early in the semester, tax credits are a direct dollar for dollar reduction of our income tax liability. We looked at the value of a tax credit compared to the value of a tax deduction. Tax credits can either be nonrefundable or refundable. A nonrefundable credit will reduce a taxpayer’s tax liability, but never below zero. A refundable credit, on the other hand, will go even further. If the credit is large enough to reduce a taxpayer’s tax liability to zero, the excess credit will be refunded to the taxpayer (i.e. treated as additional tax paid in. Example 1: Tom has a tax liability of $ 3,000, a nonrefundable credit of $ 4,000, and federal tax withheld of $ 1,500. Calculate Tom’s refund: Tax Liability Less: credit Net tax Less Withholding Refund $ 3,000 ( 3...

Words: 2508 - Pages: 11

Premium Essay

Taxation

...money saved towards their future; saving money is always the right choice. If I were to go a step further to state that James was self-employed with very few workers, would be the retirement options available to him then? It is said that there are H.R. 10 plans, also called Keogh plans that are available for persons who are indeed self-employed. If James factors in his H.R.10 contributions for employees, these would be deductible for AGI on a Schedule C, and for himself, as a for AGI deductible on page 1 of the 1040 form. These would generally have the same contribution and benefit limits as other qualified plans, however there must be the consideration that, earned income must be reduced by two amounts. According to Prentice Hall’s Federal Taxation, these would be the 50% deduction for self-employment taxes and, the Keogh contribution itself. It states that “Since the contribution is based on earned income after contribution, the 25% contribution percentage must be reduced to 20 %”; there is indeed a maximum of $245,000 of earned income that is taken into account for every individual. Other options would be Simplified Employee Pensions and Simple Retirement Plans. Simplified Employee Pension plans are said to have reduced administrative complexity than the H.R. 10 plans, and contributions are made to the IRAs of one’s employees. Here, James would need to ensure that contributions are non-discriminatory, and would be able to receive an immediate tax deduction for......

Words: 1304 - Pages: 6

Premium Essay

Federal Taxation Outline

...Chapter 3 3.1 Tax Formula Income (Gross receipts, taxable and nontaxable, except return of capital or receipt of borrowed funds) Less: Exclusions Gross Income Less: Deductions for AGI AGI Less: Greater of itemized/standard deduction Less: Personal/dependent exemptions Taxable Income Less: Tax Credits Tax Due/Refund Deductions for AGI (above the line deductions) * Expenses incurred in a trade or business * One half of self-employment tax paid * Unreimbursed moving expense * Contributions to traditional IRAs and other retirement plans * Fees for college tuition and related expenses * Contributions to health savings accounts * Penalty for savings early withdrawal * Interest on student loans * Excess capital losses * Alimony payments AGI * Basis for computing percentage limitations on certain itemized deductions such as medical expenses, charitable contributions, and certain casualty losses * Medical expenses deductible only to extent they exceed 7.5% of AGI (medical exp – (7.5*AGI)) * Charitable contributions cannot exceed 50% of AGI Personal and Dependency Exemptions * Taxpayer, spouse, and any dependent $3800 Itemized Deductions * Personal expenses such as medical exp, certain taxes and interest, and charitable contributions. * Real estate taxes, state and local......

Words: 1826 - Pages: 8

Premium Essay

Federal Taxation Week 1 Quiz

...legal services in organizing the corporation. The value of her services is $20,000. In return, Helen receives 100 shares in Red Corporation. With respect to the transfers, (Points : 2) |        Kirby will recognize gain.        Helen will not recognize gain.        Red Corporation will have a basis of $280,000 in the property it acquired from Helen.        Red will have a business deduction of $20,000.        None of the above | Question 8. 8. (TCO 11) Which statement, if any, does not reflect the rules governing the negligence accuracy-related penalty? (Points : 2) |        The penalty rate is 20%.        The penalty is imposed only on the part of the deficiency attributable to negligence.        The penalty applies to all federal taxes, except when fraud is involved.        The penalty is waived if the taxpayer uses Form 8275 to disclose a return position that is reasonable though contrary to the IRS position.        None of the above | Question 9. 9. (TCO 11) The rules of Circular 230 need not be followed by (Points : 2) |        an attorney.        a CPA.        a Walmart cashier who e-files 15 tax returns for her paying clients per filing season.        an enrolled agent.        All of the above are subject to the Circular 230 rules. | Question 10. 10. (TCO 11) The privilege of confidentiality applies to a CPA tax preparer concerning the client’s information relative to (Points : 2) |        financial accounting tax accrual......

Words: 845 - Pages: 4

Premium Essay

Taxation

...The Proposed Salary Income Tax Slab Rates 2011-12 In Pakistan Federal Budget Bill are as follows: 1.   Where the taxable income does not exceed Rs.350,000 0% 2.   Where the taxable income exceeds Rs.350,000 but does not exceed Rs.400,000 1.50% 3.   Where the taxable income exceeds Rs.400,000 but does not exceed Rs.450,000 2.50% 4.   Where the taxable income exceeds Rs.450,000 but does not exceed Rs.550,000 3.50% 5.   Where the taxable income exceeds Rs.550,000 but does not exceed Rs.650,000 4.50% 6.   Where the taxable income exceeds Rs.650,000 but does not exceed Rs.750,000 6.00% 7.   Where the taxable income exceeds Rs.750,000 but does not exceed Rs.900,000 7.50% 8.   Where the taxable income exceeds Rs.900,000 but does not exceed Rs.1,050,000 9.00% 9.   Where the taxable income exceeds Rs.1,050,000 but does not exceed Rs.1,200,000 10.00% 10.   Where the taxable income exceeds Rs.1,200,000 but does not exceed Rs.1,450,000 11.00% 11.   Where the taxable income  exceeds Rs.1,450,000 but does not exceed Rs.1,700,000 12.50% 12.   Where the taxable income exceeds Rs.1,700,000 but does not exceed Rs.1,950,000 14.00% 13.   Where the taxable income exceeds Rs.1,950,000 but does not exceed Rs.2,250,000 15.00% 14.   Where the taxable income exceeds Rs.2,250,000 but does not exceed Rs.2,850,000 16.00% 15.   Where the taxable income exceeds Rs.2,850,000 but does not exceed Rs.3,550,000 17.50% 16.   Where the taxable income  exceeds Rs.3,550,000 but......

Words: 1218 - Pages: 5

Premium Essay

Federal Taxation Article Brief

...Arayawna Moore ACCT 613- Federal Income Taxation February 22, 2014 University of Maryland University College Susan K. Duke Issue: The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States within the Labor Market Rule: * Most corporate income is subject to a 35% statutory tax rate * Taxpayers with an ordinary income tax rate of 15% or less pay the 0% rate on dividends. Taxpayers in the 25%, 28%, 33%, and 35% tax brackets are subject to a 15% tax rate on dividends. * 26 U.S. Code § 861 - Income from sources within the United States * 26 U.S. Code § 3510 - Coordination of collection of domestic service employment taxes with collection of income taxes * 26 U.S. Code § 3401 - Definitions Analysis: This article helps the reader look beyond the impact of tax changes on output or revenues allowing us to gain further insight into how tax changes are transmitted to the economy and into possible differences between the two tax components; personal and corporate income tax. The authors point out that changes in taxes may impact on costs of production and may affect inflation, to the extent that cost changes are passed into prices. There are important differences in how personal and corporate income tax changes affect the labor market. Studies that focus exclusively on total average tax rates or revenues are therefore only of limited use for assessing the ability of tax policy to affect......

Words: 738 - Pages: 3

Free Essay

Federal Taxations

...Rev. 06/2014 FACTS Why? WHAT DOES SALLIE MAE® DO WITH YOUR PERSONAL INFORMATION? Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. The types of personal information we collect and share depend on the product or service you have with us. This information can include:  Social Security number and income  Account balances and payment history  Account transactions and credit history All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons Sallie Mae chooses to share; and whether you can limit this sharing. What? How? Reasons we can share your personal information For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus For our marketing purposes – to offer our products and services to you For joint marketing with other financial companies For our affiliates’ everyday business purposes – information about your transactions and experiences For our affiliates’ everyday business purposes – information about your creditworthiness......

Words: 833 - Pages: 4

Premium Essay

Concepts in Federal Taxation 2011 Murphy Higgins 18th Edition Solutions Manual

...Concepts in Federal Taxation 2011 Murphy Higgins 18th Edition Solutions Manual Click here to download immediately!!! http://www.testbankpdf.com/taxation/concepts-in-federal-taxation-2011murphy-higgins-18th-edition-solutions-manual/ ----------------------------------------------------------------------Concepts Concepts Concepts Concepts in in in in Federal Federal Federal Federal Taxation Taxation Taxation Taxation 2011 2011 2011 2011 Murphy Murphy Murphy Murphy Higgins Higgins Higgins Higgins 18th 18th 18th 18th Edition Edition Edition Edition Solutions Solutions Solutions Solutions Manual Manual Manual Manual -------------------------------------------------------------------------***THIS IS NOT THE ACTUAL BOOK. YOU ARE BUYING the Solution Manual in e-version of the following book*** Name: Concepts in Federal Taxation 2011 Author: Murphy Higgins Edition: 18th ISBN-10: 0538467924 Type: Solutions Manual - The file contains solutions and questions to all chapters and all questions. All the files are carefully checked and accuracy is ensured. - The file is either in .doc, .pdf, excel, or zipped in the package and can easily be read on PCs and Macs. - Delivery is INSTANT. You can download the files IMMEDIATELY once payment is done. If you have any questions, please feel free to contact us. Our response is the fastest. All questions will always be answered in 6 hours. This is the quality of service we are providing and we hope to be your helper. Delivery is in the next......

Words: 30213 - Pages: 121

Premium Essay

Sw Federal Taxation 2011

...Chapter 10 Operational Assets: Acquisition and Disposition Questions for Review of Key Topics Question 10-1 The term operational asset is used to describe the broad category of long-lived assets that are used in the production of goods and services. The difference between tangible and intangible assets is that intangible assets lack physical substance and they primarily refer to the ownership of rights. Question 10-2 The cost of an operational asset includes the purchase price (less any discounts received from the seller), transportation costs paid by the buyer to transport the asset to the location in which it will be used, expenditures for installation, testing, legal fees to establish title, and any other costs of bringing the asset to its condition and location for use. Question 10-3 The cost of a developed natural resource includes the acquisition costs for the use of land, the exploration and development costs incurred before production begins, and the restoration costs incurred during or at the end of extraction. Question 10-4 Purchased intangibles are valued at their original cost to include the purchase price and all other necessary costs to bring the asset to condition and location for use. Research and development costs incurred to internally develop an intangible asset are expensed in the period incurred. Filing and legal costs for both purchased and developed intangibles are capitalized. Question......

Words: 8052 - Pages: 33

Premium Essay

Federal Taxation

...Ketlie K. Daniels Professor: Christopher Zapalski Federal Taxation – ACC 307 006016 November 21, 2010 Discuss the different types of interests and the IRS rule related to the deductibility of each type for tax purposes. Interest is defined as compensation for the use or forbearance of money. The general rule permits a deduction for interest paid or accrued within the taxable year on indebtedness. There are several types of allowable interest. If you paid or accrued interest on a loan and used the loan proceeds for more than one purpose, you may have to allocate the interest. This is necessary because different rules apply to investment interest, personal interest, trade or business interest, and home mortgage interest. Interest on Qualified Student Loans - The deduction is allowable only to the extent that the proceeds of the loan are used to pay qualified education expenses. Interest paid on student loans are treated differently than other interest expenses. Unlike other interest, student loan interest is not itemized on your tax return, which means it can be deducted regardless of whether you itemize or use the standard deduction. Investment Interest - is interest paid on money borrowed to purchase or hold investment property. Investment interest is deductible as an itemized deduction to the extent of net investment income. Qualified Residence Interest - interest on a home mortgage, which may be deductible as an itemized deduction. Includes interest on......

Words: 1031 - Pages: 5

Premium Essay

Federal Taxation - Audit

...decision can be reached, if the taxpayer ultimately decides to go to court. A taxpayer, having made a decision to go to the District Court, for example, cannot later decide to go to the Tax Court. The taxpayer must think very seriously before taking the case to court. Not only may the economic costs be high, but the psychological and emotional costs may equally traumatic. The taxpayer will need to consider whether the tax savings will be worth the legal fees, time, and costs associated in going through with the case. In deciding to which court to take the case, the taxpayer should never us past statistics on taxpayer winnings in the various courts as an indicator to pursue a case. References [1] Gibberman J.D., David L., (2010) CCH Federal Taxation-Basic Principals, Comprehensive Topics, ISBN 978-0-8080-2353-1, Printed in U.S.A. [2] http://www.irs.gov/pub/irs-pdf/p947.pdf, Retrieved: May 4, 2011 [3] http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00006701----000-.html, Retrieved, May 6, 2011 [4] http://www.nysscpa.org/cpajournal/2008/708/essentials/p40.htm, Retrieved, May 7, 2011 [5] http://www.irs.gov/pub/irs-pdf/p10.42.pdf, Retrieved: May 7, 2011 [6] Mathews, Mark E., (2004), Regulations Governing Practice Before the Internal Revenue Service, Document: 31 CFR Part 10 [REG-159824-04] RIN 1545-BE13...

Words: 1063 - Pages: 5

Premium Essay

Federal Taxation -You Decide Paper

...deduction for John than purchasing the building since leasing is deductible from gross income. (Code §162(a)) Since John and Jane do not have employer sponsored retirement programs we recommend establishing traditional IRA’s. This will allow both of them to have a retirement program and a tax deduction each year of $10,000. (§219(f) (3)) John is able to establish Jane’s IRA and contribute since she has minimal income. (Code §219(c )) With the lease payment and the IRA’s John will have deductions of $52,000 against the $300,000 and an additional deduction of paying half of the self employment tax. () 2(a) Jane inquired concerning what the tax treatment difference if any there is in paying down a mortgage and assuming a new mortgage in terms of federal taxes. Married taxpayers may exclude up to $500,000 of gain upon the sale of their residence every two years. (Code § 121(b)(1) and (2), (Code §121(b)(3)(B)). The requirement is they need to have owned and occupied the residence as their principal residence for two out of the last five years prior to the sale. (Code §121(b)(3)(A)) Assuming a new mortgage will most likely give them a larger deduction of mortgage interest if they have lived in their current home for a while that is otherwise nondeductible. (Code § 163(h)(3)(E)(i). In summary the only tax advantage is the ability to have a larger deduction of mortgage interest on the new home. (Code § 163(h)(3)(E)(i). With the sale of their current home they would be able to......

Words: 2142 - Pages: 9

Premium Essay

Federal Taxation

...Should the USA convert to a zero personal income tax? Abstract: This paper will discuss 2 countries that have implemented zero federal income tax and what would happen if the US chose to adopt a similar tax base. Every year most people in the United States of America gear up to file their yearly personal income taxes. The government relies on this money to operate. About forty five percent of the government income of the United States comes from personal income tax. A lot of Americans wish that they did not have to pay personal income taxes and that the US would adopt a zero income tax policy. There are many countries that currently have a zero tax model and it works. This paper will discuss the systems of Qatar and the Cayman Islands and determine if the US could benefit from similar models. In Qatar the government relies on its income from the natural gas reserves. It is one of the richest countries in the world. Qatar’s gas reserves are the third largest in the world. It requires businesses that are in the oil and gas industries to pay a thirty five percent tax rate. Residents of Qatar pay five percent of their income to social security and their employers pay 10 percent. Because the U.S. does not have the natural gas reserves like Qatar, it cannot rely on such reserves to provide income for the government. The Cayman Islands are another country with a zero personal income tax. They also do not require residents to pay into social security. Because...

Words: 1456 - Pages: 6

Premium Essay

Federal Taxation

...14-24 ANS According to IRS code sec 243, the purpose is to avoid triple taxation that’s allowing corporation to pay dividends to its shareholders without being taxed for the third time. Domestic corporations and dividends paid by the domestic corporation are entitled to the claim of dividends-received deduction. 14-51 ANS The net income on its financial books of a corporation my differ from the taxable income on its return and reconciliation is used to reconcile the difference. 14-52 ANS a) Realized gain but unrecognized ($27,000-$15,000=$12,000) Basis of $15,000 b) Recognized gain of $2,000 ( $3,000-$1,000) Basis of $1,000 c) $10 per stock *900 shares =$9,000 Basis of the stock is $15,000 less $9,000 (shares of 900*$10 per stock) gain of $6,000 to the corporation ($15,000-$9,000) Basis to the corporation of the property received is $15,000 d) $10 per stock *100 shares = $1000 Basis of stock is $1,000 less $1,000 (100 shares*10) no gain or loss ($1,000-$1,000) Basis to the corporation of the property received is $1,000 17-1 ANS Seven types of corporate reorganization Type A reorganization is a form of consolidation or merger that meeting state law requirement. (Reg. 1.368-2(b)) Type B reorganization is a form of reorganization used to acquire asset and stock of Target Corporation. Type C reorganization is a form of reorganization that the corporation acquiring the target corporation exchanges the massive acquisition of the target corporation for its......

Words: 620 - Pages: 3

Premium Essay

Federal Taxation

...Federal Tax Law Effect on Individual Taxpayers Regarding Earned Income Tax Credit Federal Tax Law Effect on Individual Taxpayers Regarding Earned Income Tax Credit Jaree Chambers DeVry University / Keller Graduate School of Management Abstract Federal tax law effects each taxpayer differently and can prove difficult to interpret. The differences very due to income, family size or family situations i.e. single, married, divorced, childless, etc., and allowable credits or deductions. During our review of the Federal tax laws in this paper, we will briefly document how the United States taxation system developed and the effects of the earned income tax credit on taxpayers. While the earned income tax credit and the child tax credit came to be around the same time, we will focus on the earned income tax credit as it is our largest federal entitlement program. Federal Tax Law Effect on Individual Taxpayers Regarding Earned Income Tax Credit Taxation dates back to the United States Constitution empowering Congress to “lay and collect taxes, duties, imports and excises to pay the debts and provide for the common defense and general welfare of the United States.” Limitations were established limiting taxation as follows: “all duties, imports, and excises shall be uniform throughout the United States, that direct taxes should be laid in proportion to the population.” This language is key as many early tax laws were found to be unconstitutional due to these two simple......

Words: 2417 - Pages: 10