Current Tax System: Why Do We Have Income Tax?
Current Tax System Why Do We Have An Income Tax What Is The Legal
Current Tax System • Why do we have an income tax, what is the legal basis, how does congress use tax law? • What is the audit process utilized by the IRS as part of the administration of tax law? • What ethical guidelines will apply to you in your tax practice? Tax Law • What are the economic, social, equity, and political considerations that justify various aspects of the tax law? • Describe the role played by the IRS and the courts in the evolution of the federal tax system • What is the purpose of each of these three sources of tax law: statutory, administrative, and judicial ? Deductions and Exemptions • Define all parts of the federal income tax formula • Arrive at the correct number of personal exemptions • Apply dependency exemption rules • Calculate the tax liability • Determine the correct filing requirement and status for a taxpayer • Understand basic property transaction rules Gross Income - Concepts and Inclusions • Distinguish between the economic, accounting, and tax concepts of gross income • Determine if a taxpayer should pay the tax on a particular item of income • Determine if certain items are considered income by applying the Internal Revenue Code rule Exclusions from Gross Income After completing this section, you should be able to do the following: • Identify when to exclude an item from gross income • Identify when receipts can be excluded under the tax-benefit rule • Describe when income must be reported from the discharge of indebtedness Deductions and Losses in General • Determine the benefit derived from deductions for and from adjusted gross income • Determine the special rules that apply to the following items: public policy limitations, political activities, excessive executive compensation, investigation of business opportunities, hobby losses, vacation-home rentals, payment of others' expenses, personal expenditures, capital expenditures, related-party transactions, and expenses related to tax-exempt income Business Expenses • Determine how to apply a bad debt deduction • Determine the tax effects of worthless securities, including §1244 stock • Correctly apply the tax rules for deductible and nondeductible losses of individuals • Determine the proper application of a casualty loss deduction • Calculate the domestic production activities deduction • Determine the effect of the carry back and carryover provisions Depreciation • Identify the time periods for the different tax depreciation methods • Determine the cost recovery under MACRS • Identify listed property and special rules for them • Calculate the amortization amount for an intangible asset Employee Expenses • List the business and personal expenditures that are deductible either as miscellaneous itemized deductions or as other itemized deductions • Calculate the moving expense deduction • Calculate the contribution to a retirement account • Identify limitations on itemized deductions Certain Itemized Deductions • Identify deductible and nondeductible, personal expenses • Identify medical expenses and calculate the medical expense deduction • Identify the deductibility of state and local income taxes and sales taxes • Identify limitation on certain itemized deductions applicable to high-income taxpayers Passive Activities • Explain why at-risk and passive loss limitations were put into tax law • Identify the taxpayers subject to passive loss rules that limit deductions for losses • Discuss the rules for identifying a passive activity • Apply the rules for material participation • Describe how passive loss rules apply to rental activities Tax Credits • Explain why congress creates tax credits that reduce federal tax collections • Identify the difference between refundable and nonrefundable credits and how they are applied • Identify business-related tax credits • Identify tax credits that apply to individual taxpayers Partnership Distributions • What are the rules pertaining to partnership taxation? • What tax impacts are there when forming a partnership with cash and property contributions? • What accounting periods and accounting methods can partnerships use? • Does a partnership have a taxable income? • How is a partner's income tax return affected by specific partnership items? • Determine a partner's basis in the partnership interest and explain how liabilities affect the basis computation. • Are there limits on deductions for partnership losses? • How are transactions between a partner and the partnership reported? • What are the impacts to individual partners when liquidating a partnership? • How is a selling partner's gain or loss on the sale or exchange of a partnership interest reported? • Do partnership provisions also apply to limited liability companies (LLCs) and limited liability partnerships (LLPs)?
Trusts, Estates, etc. • What are trusts, estates, beneficiaries, and other parties? • How are the accounting and taxable income of a trust or estate and the related taxable income of the beneficiaries determined? • Illustrate the uses and implications of distributable net income. Accounting Standards • What are the objectives of financial accounting? • What are generally accepted accounting principles? • What ethical rules do accountants have to follow related to financial reporting? Conceptual Framework • What are the basic assumptions used in accounting? • What are qualitative characteristics of accounting information? • What impact do constraints have on reporting accounting information? • What is the rule-setting authority of the Financial Accounting Standards Board, the Securities and Exchange Commission with regard to accounting regulations and enforcement, and the International Accounting Standards Board?
Receivables — Valuation Methods • What methods are used to account for bad debt expense? • What is the journal entry to record bad debt expense under each method? • How do you calculate the allowance for bad debt? • What is the journal entry to record accounts receivables sold with recourse and without recourse? • Explain how discounts offered to customers have an effect on the value of receivables Inventory-Valuation methods • What impact do free on board (FOB) terms have on inventory valuation? • What is the effect of the dollar-value last-in, first-out (LIFO) on income and asset valuation? Acquisition and Disposition • What is the cost of property, plant, and equipment? • How is construction-project interest costs recorded? • What is a lump-sum purchase of assets, and how is each asset valued?
Depreciation and Depletion • What is depreciation? What is accumulated depreciation? • What are the different methods used for depreciation? • What is the journal entry to record depreciation under each method? • What is the best method to use for depreciation based on given circumstances? • What method is used to calculate depletion? Intangible Assets • What is the difference between a tangible and intangible asset? • What is goodwill? • What method is used to cost allocate an intangible asset? • How are research and development costs accounted for? • How do the impairment rules impact asset value? Current Liabilities • How are short-term payables recorded? • How are dividends payable recorded? • What are unearned (or deferred) revenues, and how are they recorded? • What items are included in payroll and the associated payables? • What is a contingency, and when do the disclosure requirements require recording in the accounting records? • What is an imputed interest rate, and how is it used?
Long Term Liabilities • What are the characteristics of different types of corporate bonds? • Why are bonds issued at a price different from face value? • How is a bond issue-price determined? • How are the accounting entries different for straight-line and effective interest amortization? • How is the accounting different for a bond issuance between interest dates? • How is the value of long-term notes payable calculated? • How is off-balance-sheet financing used? Capital Acquisition from Investors • How are stock issuances recorded? • How are stock splits accounted for? • How does the accounting change if a stock dividend is large vs. small? • Does the income statement reflect gains from treasury stock reissuance? • How do common and preferred stock differ? • Do stock options have any effect on the balance sheet? • What is done on each of the dates associated with a dividend?
Dilutive Securities and Earnings per Share • How are stock options recorded? • How is a conversion from debt to common stock recorded? • What impacts does a convertible preferred class of stock have on earnings per share? • Do stock dividends and stock splits impact earnings per share calculations? • What is the difference between basic earnings per share and diluted earnings per share? Investments • What are the different types of securities? • How do the accounting entries change for securities at cost and at equity? • What effect did the Securities Act of 1933 have on investments? • What effect did the Securities Exchange Act of 1934 have on investments? Revenue Recognition • What are the eight ways to recognize revenue? • What is channel stuffing, and how does the practice affect revenue recognition? • What methods can be used to report revenue on long-term construction projects? • How do the rules change when accounting for discontinued operations? • What are extraordinary items? • How does a change in accounting principle affect the income statement?
Accounting and Income Tax Rule Differences • Using given data, what is deferred tax asset or deferred tax liability? • Identify temporary and permanent tax differences. • How are deferred taxes over multiple years affected based on the marginal-rate tax system? • How do the rules for tax loss carry backs and carry forwards differ? • What are intra-period tax allocations? Pensions • What are two types of pension plans? • What is the journal entry to record pension expense under each type? • What is a defined benefit plan compared to a defined contribution plan? Leases • What are the four capitalization rules used to classify a lease as a capital lease or an operating lease? • What is the journal entry to record the minimum lease payment? • What is the journal entry to record a lease payment when a residual value is present?