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Current Tax Structure

Introduced in 1913 with the 16th Amendment.

April 15

Tax Day

Form 1040

Federal Annual Tax Return

Tax Rate

Percentage that is applied to the Taxable Base.

Tax Base

The dollar amount subject to tax.

Tax Bracket

Series of Taxable Bases subject to a particular Tax Rate.

Progressive Rate Structure

a tax in which the average Tax Rate increases as the Tax Base increases.

Proportionate Rate Structure

Flat Tax Rate applied to all regardless of Taxable Base.

Regressive Rate Structure

A graduated Rate Structure with rates that decrease as the Tax Base increases

Filing Status

Your tax-filing group based on your marital status

Married Filing Separately

The filing status used by a married couple who chooses to record their respective incomes, exemptions, and deductions on separate individual tax returns.

Head of Household

Special status for unmarried taxpayers who support other people besides themselves and their children

Qualified Widower

Marginal Tax Rate

the extra taxes paid on an additional dollar of income

Average Tax Rate

total tax liability divided by total taxable income

Tax Liability

the total amount of taxes owed

Schedule 1

additional income and adjustments to income

Standard Deduction

A stated amount that you may subtract from adjusted gross income instead of itemizing your deductions

Standard Deduction - Single

$12,950

Standard Deduction - Married Filing Jointly

$25,900

itemized deduction

expenses you can subtract from adjusted gross income to determine your taxable income.

State or local tax refund may be taxable on your tax return!

Quarterly Tax Payments

Good or even required for sole proprietorships who withdraw money from corporate accounts

taxable income

income on which tax must be paid; total income minus exemptions and deductions

Tax credits reduce your

tax liability

Gross Income

the total amount of income from wages before any deductions

Adjusted Gross Income

Gross income less permitted deductions

What are the four stages of tax mitigation?

permitted deductions, standard deduction or itemized deduction, tax credits, and tax payments and refundable credits

Schedule 2

Additional Taxes

Schedule 3

Additional Credits and Payments

Permitted Deductions

line 10 on the 1040 refers to Schedule 1 Part II, line 26 also known as "for AGI deductions"

Educator Expenses

$300 of deductions or $600 for married teacher couples.

Qualifying Child test number

5 tests technically

Qualifying Child: Relationship Test

The individual and the taxpayer must meet one of the following relationship tests:

-Natural child, stepchild, adopted child, certain foster children

-A sibling or step-sibling

-A descendant of one of the above.

Cousins do not pass the test.

Qualifying Child: Age Test

Under the age of 19 or 24 if they are a full time student. or totally and permanently disabled. Dependent must be younger than the claimant

Qualifying Child: Residency Test

Must have lived with the tax payer more than half of the year except for temporary absences:

- education

- vacation

- illness

- military service

Qualifying Child: Support Test

child must not have provided more than half of own support (living expenses) for the year.

Scholarships are excluded from support if the qualifying child is the ACTUAL CHILD of the taxpayer claiming the exemption (and the child is a full-time student).

Special test for qualifying child of more than one taxpayer

Only one individual can claim a qualifying child.

Qualifying Relative: Child Test

Determine if the dependent can be claimed as a child, if so claim them.

Qualifying Relative: Relationship or Household Test

Either: A member of the Taxpayer's household for the entire year.

Or

- Child or descendant of child

- Stepchild

- Eligible foster child

- Brother, Sister, half-, or descendant of them

- Stepbrother or sister

- Father or mother

- Brother or sister of parents

\- -in-law, son, father, brother

Qualifying Relative: Gross Income Test

Gross income can not exceed the limit.

Qualifying Relative: Support Test

Taxpayer must provide over 50% of the support for the dependent.

Filing Status

Determined as of the last day of the tax year.

Deceased Spouse with Dependent Child Year 2 and 3 Filing Status

Qualified Widower

Deceased Spouse with Dependent Child Year 1 Filing Status

Married Filing Jointly

Deceased Spouse with Dependent Child Year 4 Filing Status

Head of Household or Single if Child is no longer Dependent

Additional Standard Deduction

available for taxpayers and/or spouse (not dependent) who are:

--65 and older

--blind

--two additional SD are allowed for 65+ and blind

(amount allowed depends on filing status)

No Standard Deduction

- Change in tax accounting period

- nonresident alien

- married filing separately and one itemized

personal exemption

Set amount that you subtract from your gross income for yourself, your spouse, and any dependents. Phased out in 2018 but is scheduled to return in 2028. Standard deduction was raised to replace personal exemption.

Additional Standard Deduction Amount, Single, Head of Household

$1,750

Additional Standard Deduction Amount, Qualifying Widow and both Married filings

$1,400

Limited Standard Deduction for Dependent

Dependent Child who is working full time but is being claimed.

They can get a standard deduction of the greater of:

- $1,150

- Taxpayer's earned income plus $400 with a maximum of regular standard deduction of $12,950, this is done to prevent wealthy people giving their kids investments tax free.

Child Tax Credit

a tax credit given for each qualifying child under 17

Interest Charged on Assessments

All taxes are due on April 15th regardless of extension to FILE. Failure to do so will lead to you being charged interest on the eventual tax payment. Federal Short Term rate + 3% per year.

Failure to file a tax return

5% penalty PER MONTH (rounded up for fractional months) up to a maximum of 25% if you do not file a tax return by its due date or valid extension date.

Any Tax return that is not filed within 60 days of its due date is subject to a minimum penalty of the lesser of:

- $450

- the amount of the tax required on the return

If the failure to file is due to fraud the penalty is 15% per month up to a maximum of 75%.

Failure to pay taxes

0.5% of the tax shown on the return for EACH MONTH (fraction round up) the tax is unpaid, up to a maximum of 25%. Failure to file penalty is reduced by the failure to pay penalty and both have a maximum of 5% per month up to 25% maximum.

Failure to Pay Estimated Taxes

Penalty for self-employed or significant non W-2 income.

The penalty is the same rate as the interest rate used for interest charges.

To avoid the penalty you must have paid during the year: