Term
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Definition
| payment required by a government agency that is unrelated to any specific benefit or service received from the government agency |
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Term
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Definition
| The tax rate that applies to the next additional increment of a taxpayer's taxable income |
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Term
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Definition
| the taxpayer's average level of taxation on each dollar of taxable income |
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Term
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Definition
| the taxpayer's average rate of taxation on each dollar of total income(both taxable and non taxable) |
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Term
| Proportional Tax Rate(Flat Tax) |
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Definition
| imposes a constant tax rate throughout the tax base |
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Term
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Definition
| Imposes an increasing marginal tax rate as the tax base increases |
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Term
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Definition
| Imposes a decreasing marginal tax rate as the tax base increases. |
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Term
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Definition
| levied on the fair market values of wealth transfers upon death or by gift |
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Term
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Definition
| are ad valorem, on real property and personal property taxes |
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Term
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Definition
| the tax base for each is the fair market value of the property |
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Term
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Definition
| Income Taxes, Excise Taxes |
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Term
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Definition
| Indirect tax that results from a tax advantage the government grants to certain transactions. Defined as the reduced before-tax return that a tax-favored asset produces because of its tax advantages status |
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Term
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Definition
| involves assessing the aggregate size of the tax revenues that must be generated and making sure that the tax system provides these revenues |
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| How the tax burden should be distributed across taxpayers |
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| Means that taxpayers should be able to determine when to pay the tax, where to pay the tax, and how to determine the tax |
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Term
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Definition
| tax system should be designed to be collected without undue hardship to the taxpayer |
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Term
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Definition
| should minimize the compliance and administration costs associated with the tax system |
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Term
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Definition
| two taxpayers in similar situations pay the same tax |
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Term
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Definition
| taxpayers with greater ability to pay tax, pay more tax relative to taxpayers |
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Term
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Definition
| the time in which the taxpayer can file an amended return or the IRS can assess a tax deficiency- generally 3 years. |
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Term
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Definition
| understate gross income by 25% |
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Term
| Correspondence Examination |
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Definition
| most common audit, conducted by mail and are generally limited to 1 or 2 items on the return |
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Term
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Definition
| second most common audit, conducted in the local IRS office and tends to be broader in scope |
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Term
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Definition
| Least common audit, held at the taxpayer's place of business and can last months to years |
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Term
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Definition
| National Court, do not pay tax 1st |
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Term
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Definition
| Local court, possible jury trial, generalists, pay tax 1st |
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Term
| US Court of Federal Claims |
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Definition
| National Court, Generalists, pay tax 1st, appeals to US circuit court of appeals for the Federal Circuit |
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Term
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Definition
| most common type of penalties, generally in monetary penalties, imposed when tax practitioners or taxpayers violate tax statutes without reasonable cause |
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Term
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Definition
| much less common than civil penalties, penalties are much higher and can include prison sentences |
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Term
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Definition
| Income never included in taxable income, including municipal bond interest, or gain on sale of personal residence |
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Term
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Definition
| Income included in a subsequent tax year, includes installment sales and like-kind exchanges |
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Term
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Definition
| Deductions "above the line", deducted in determining adjusted gross income, and always reduce taxable income dollar for dollar |
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Term
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Definition
| "below the line", Deducted from adjusted gross income to determine taxable income, greater of standard deduction or itemized deduction(schedule A) |
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Term
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Definition
| US uses a progressive tax rate schedule, and some items are taxed at preferential rates(long term capital gains, qualified dividends) |
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Term
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Definition
| reduce tax liability dollar for dollar |
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Term
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Definition
| payments already made towards tax liability including: income taxes withheld from wages by employer, estimated tax payments during the year and taxes over paid in prior years |
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Term
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Definition
| Resident of US, Canada, or Mexico, must not file joint return with spouse and must be qualifying child or qualifying relative |
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Term
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Definition
| must adhere to four tests: relationship, age, residence and support tests |
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Term
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Definition
| Taxpayer's son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister or a descendant of any of these relatives |
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Term
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Definition
| Must be younger than individual claiming child and either- under the age of 19 at end of year, under the age of 24 and full time student or permanently and totally disabled |
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Term
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Definition
| Same residence as taxpayer for more than half the year |
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Term
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Definition
| Child must not provide more than half of his or her own support, scholarships of actual child are excluded |
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Term
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Definition
| Must satisfy three tests: Relationship, Support and Gross income test |
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Term
| Relationship Test(Relative) |
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Definition
| descendant or ancestor of the taxpayer, sibling of the taxpayer or a stepmother, stepfather, stepbrother, stepsister, nephew, niece, aunt, uncle, in-law or an unrelated person who lives in taxpayer's home entire year |
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Term
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Definition
| Taxpayers must pay greater than 1/2 of living expenses |
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Term
| Gross Income Test(Relative |
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Definition
| Their gross income must be less than the personal exemption amount, $3700 |
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Term
| Qualifying widow or widower |
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Definition
| available for the two years following year of spouse's death, surviving spouse does not qualify if remarries during two-year period, surviving spouse must maintain household or dependent child |
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Term
| What is included in gross income |
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Definition
| Increase in fair market value of an asset, taxpayer engages in a transaction with another party, transaction results in a measurable change in property rights, Gain from the sale or disposition of an asset is included in realized income. |
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Term
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Definition
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Term
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Definition
| the tax basis is excluded when calculating realized income because it does not represent an economic benefit |
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Term
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Definition
| Refunds of expenditures deducted in a prior year are included in gross income to the extent that the refund reduced taxes in the year of deduction. |
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Term
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Definition
| taxpayer must realize and recognize income when it is actually or constructively received. Deemed to occur when income is credited to the taxpayers account |
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Term
| Income from Flow-through Entities |
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Definition
| Individuals may invest in various business entities. if the entity is a flow-through entity such as a partnership or S corp, the income and deductions of the entity"flow through" to the owners of the entity(partners or shareholders) |
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Term
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Definition
| Certain employee discounts or low interest loans generate income via indirect benefits. For low interest loans, the amount of imputed income is the difference between the amount of interest using the applicable federal interest rate and the amount of interest the taxpayer actually pays, does not apply to loans of 10000 or less |
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Term
| Discharge of Indebtedness |
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Definition
| When taxpayer's debt is forgiven by a lender, the taxpayer must include in gross income |
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Term
| Tax relief for insolvent taxpayers |
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Definition
| taxpayers with liabilities exceeding their assets a discharge of indebtedness is not taxable, however is discharge makes taxpayer solvent, then they must recognize income to the extent of their solvency. |
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Term
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Definition
| State and local Bonds are excludable and recognized as a subsidy to state and local governments- Implicit Tax |
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Term
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Definition
| Value of benefits is included in the employee's gross income as compensation for services. |
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Term
| Qualifying Fringe Benefits |
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Definition
| common qualifying fringe benefits are medical and dental health insurance, life insurance and small benefits are excluded from gross income |
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Term
| Nontaxable Fringe Benefits |
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Definition
| group term life insurance, health and accidental insurance, meals and lodging for convenience of employer, employee educational assistance, and dependent care benefits. |
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Term
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Definition
| A maximum of 95100 of foreign earned income can be excluded from gross income for qualifying individuals. |
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Term
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Definition
| payments from workers' compensation plans are excluded from gross income |
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Term
| Payments associated with Personal Injury |
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Definition
| awards that relate to physical injury or sickness are excluded from gross income. non-physical injury and punitive damages are fully taxable |
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Term
| Trade or Business Expenses |
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Definition
| directly connected to the business activity, ordinary and necessary for the activity, and reasonable in amount |
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Term
| Rental and Royalty Expenses |
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Definition
| Could either be an investment activity or a trade activity depending on facts |
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Term
| Flow through entities(For AGI) |
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Definition
| Expenses and losses incurred by a flow-through entity pass through the entity owners who typically report these amounts on Schedule E and line 17. |
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Term
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Definition
| Taxpayers disposing of trade or business assets at a loss are allowed to deduct the loss for AGI. A net capital loss is deducted for AGI but limited to $3000. Losses in excess of $3000 limit are carried forward indefinitely to subsequent years |
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Term
| Deductions indirectly related to Business Activities- Moving Expenses |
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Definition
| are deductible for AGI if the move meets two tests: a distance test and a business test associated with the move |
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Term
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Definition
| the new job site must extend existing commute by 50 Miles. |
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Term
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Definition
| taxpayer must be employed at least 39 of 52 weeks or be self-employed for 78 of the 104 weeks following the move. |
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Term
| Health Insurance deductions by Self-Employed Taxpayers |
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Definition
| Deduction provides equity with employees who receive health insurance as a qualified fringe benefit. |
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Term
| Penalty for early withdrawals of savings |
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Definition
| Reduces the taxpayer's net interest income to the amount actually received |
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Term
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Definition
| Deductibe for AGI to encourage savings |
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Term
| Interest expense on qualified educational loans |
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Definition
| deductible up to $2500- phaseout |
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Term
| Qualified educations expenses |
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Definition
| extended into 2010, deductible for a max of $4000- phaseout |
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Term
| Medical Expenses(From AGI) |
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Definition
| Taxpayers may deduct medical expenses incurred to treat themselves, their spouse, and their dependents. Qualified medical expenses include unreimbursed payments for care, prevention, diagnosis or cure of injury, disease or bodily function. It is limited to the amount of unreimbursed qualifying medical expenses paid during the year which is reduced by 7.5% of the taxpayers AGI. |
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Term
| Hospital and Long-term care facilities(From AGI) |
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Definition
| Taxpayers may deduct the costs of actual medical care whether the care is provided at hospitals or other long-term care facilities |
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Term
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Definition
| Individuals may deduct itemized deductions payments for following taxes: state, local, and foreign income taxes, real estate taxes on property held for personal or investment purposes |
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Term
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Definition
| State and local sales taxes can be deducted in lieu of state and local income taxes |
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Term
| Interest Deduction(Itemized Deduction) |
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Definition
| Deduction of investment interest is limited to a taxpayer's net investment income, any excess is a carry forward to the subsequent year |
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Term
| Home mortgage interest(Itemized Deduction) |
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Definition
| Interest on acquisition indebtedness of $1 Million, and Interest on home equity debt of $100K |
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Term
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Definition
| Contribution of money or property must be made to a qualified charity. For property , limitation of 50% of contribution, or limitation to the 30% contribution is the lesser of AGI X 30% or AGI X 50% minus the amount of contributions deducted in step 1 |
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Term
| Casualty and Theft losses |
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Definition
| The amount of the tax loss from any specific casualty event(including theft) is the lesser of: decline in value of the property caused by the casualty or taxpayer's tax basis in the damaged or stolen asset. |
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Term
| Casualty loss floor limitations |
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Definition
| must exceed two separate floor limitations: $100 for each casualty during the year and 10% of AGI floor limit applied to the sum of all casualty losses for the year. |
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Term
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Definition
| Employee Business Expenses, Investment expenses, tax prep fees, Hobby losses, total miscelleneous itemized deductions are subject to a 2% of AGI floor limit |
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