Graduate level tax, prework

what is the primary source of tax code

IRC of 1986

now it is passed by congress

primary objective of federal law

raise revenue for teh governmentw

what is congress often guided by

revenue neutrality or the concept that you must trade off between tax rate and base to not increase or decrease the deficit

What are teh economic objectives tax law achieves adn waht are examples

• Control the economy

  • 179

  • bonus

• Encourage benefical actives

  • R&D credits

  • domesitc innovation

  • foreign R&D is captayled not expensed

• encoruage certain industries

  • oil, gas and natrual resoruce

  • farming

  • alternative enrgy

• encourage small bussinesses

  • 1202 small business stock gains

  • 1244 qualifed small bussienss stock losses

  • small business expetion

what are socail objectives achieved by teh IRC

encrouages deduction to charities

how does the tax system ensure fairness and equity

• progressive/regressive/proportional tax scales

  • This compares income level and % of income

  • progressive: federal income

  • regressive: sales tax

  • porpotinal: corporate income tax

• Address multiple levels of taxation

  • dividend received deductions

  • tries to make every $ taxed once

• Wherewithal to pay concept: recognized vs realized

  • When you trade your assets with a built-in gain for stock in a company, you can defer the gain because you didn’t get cash to pay it

• Mitigating the effect of annual accounting periods

  • NOL cf help so that just because you may have a big loss this year that you cannot do much with you can carry it forward so long term you will pay teh same amount as someone with a steady income

How do politics play a role in tax law?

• special interest legislation

  • pay tax on prepaid rent

  • Magazine subscriptions pay tax later

  • land above the 8th parallel

• Political expediency

  • no tax on tips

  • corporate AMT

You can see why Congress chose things on Congress’s website and by pulling up legilsation

What factors go into choosing a business entity

both tax and nontax factors

• althoguh nontax factors ussually domniate

  • legal liability

What are the most common business types for nonemployers, small employers or large employers

nonemployers: sole propertorships

small: S coprs then C coprts

large: C cortps

Consider teh following for sole propertorshisp, prtnerhps, s corps and c corps:

Tax:

Ability to Raise Capital

Liability

Maximum # of Owners

Other

Tax:

Filing Requirments

Tax Rate

Layers of Taxation

QBI?

Taxation of Contributions

SE considerations?

	Sole Propertorship	Partnshiper/llc	S corporation	C Corporation
Tax:
Ability to Raise Capital	Limited	Can raise funds through pooling of owner resources - Limited ptshps can raise capital form invetors	Greatest ease and potenatil for raising capital but limited number of investors	Greatest ease and potenatil for raising capital
Liability	Unlimited	- General ptnrs are jointly and severally liable - limited partners liability is limited to investment	- owners have limited liability	- owners have limited liability
Maximum # of Owners	Maximum: 1	Minimum: 2	Maximum: 100 individual, estates and some trusts(no entities) -  cannot have non-resident aliens as SH	none(although some states require a minimum of 2)
Other			-  Cannot have more than 1 class of stock - all rules of C corps apply unless specifically stated	Have perpetual excistience
Tax:
Filing Requirments	Files Schedule C, form 1040	Files form 1065(including K-1s for each partner	Files form 1120s(including K-1s)	1120
Tax Rate	37%	37%	37%	21%
Layers of Taxation	Single- all tax flows through owner and retains chartertor	Single- all tax flows through owner and retains chartertor	Single- all tax flows through owner and retains chartertor	2 layers of taxation: entity level tax and individual tax through sh receiving dividends -  no deduction to corp for dividend payouts
QBI?	- Eligible for QBI deduction	- Eligible for QBI deduction	- Eligible for QBI deduction	No
Taxation of Contributions	- Tax free contributions and distributions	- Tax free contributions and distributions	- Contributions are taxable unless 351 requirements are met - tax free distributions	- Contributions are taxable unless 351 requirements are met
SE considerations?	- Proprietor pays SE taxes	- GP for services and distributive share of net earnings of general prtnr subject to SE tax	- payroll taxes owed on reasonable compensation paid to sh/employees	- payroll taxes owed for sh/employees

What are teh default entity classifications

• incorporated entites are taxed as C corporations unless tehy elect to be taxed as an S corporation

• unicorproated w 1 owner: sole propertirship

• unincorpoarted with 2+ owners: partnerhsip