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tax 🗸🗸🗸 : payment to support cost of government taxpayer 🗸🗸🗸 : any person or organization required by law to pay a tax to a governmental authority incidence 🗸🗸🗸 : the ultimate economic burden represented by the tax jurisdiction 🗸🗸🗸 : the right of the governement to levy tax on a specific person or organization tax base 🗸🗸🗸 : an item, occurrence, transaction, or activity with respect to which a tax is levied formula for tax 🗸🗸🗸 : Tax(T)= Rate(r) X Base(B)
earmarked taxes 🗸🗸🗸 : the revenues from some taxes are earmarked to finance designated projects
- revenues from local real property taxes are typically earmarked to support public school systems local taxes 🗸🗸🗸 : - real property tax
- personal property tax real property tax 🗸🗸🗸 : land and whatever is erected or growing on the land or permanently affixed to it
- levied annually and are based on the market value of the property as determined by the local government personalty property taxes(personalty) 🗸🗸🗸 : any asset that is not realty
- based on value of the asset subject to tax
- household tangibles, business tangibles and intangibles including cars, inventory, furniture, marketable securities state taxes 🗸🗸🗸 : - sales tax
🗸🗸🗸 : a good tax should be convenient to administer and the collection method should not overly intrude on individuals privacy but should offer minimal opportunity for noncompliance classical standard of efficiency 🗸🗸🗸 : neutral in its effect on the free market. a tax that causes people to modify their economic behavior is inefficient because it distorts the market and may result in suboptimal allocation of goods and services modern efficiency 🗸🗸🗸 : when individuals or organizations react to the tax by deliberately changing their economic behavior horizontal equity 🗸🗸🗸 : persons with the same ability to pay owe the same amount of tax vertical equity 🗸🗸🗸 : persons with a greater ability to pay, owe more tax than persons with a lesser ability to pay regressive rate structure 🗸🗸🗸 : graduated rates that decrease as the base increases
proportionate rate structure 🗸🗸🗸 : single rate applied to taxable income progressive rate structure 🗸🗸🗸 : rates increase as income increases results in an equality of sacrifice across taxpayers marginal rate 🗸🗸🗸 : rate that applies to the next dollar of income average rate 🗸🗸🗸 : tax divided by taxable income uncertainty of tax consequences 🗸🗸🗸 : - audit risk
- tax law uncertainty
- marginal rate uncertainty arms-length 🗸🗸🗸 : unrelated parties that are just engaged in business related party transaction
assignment of income doctrine 🗸🗸🗸 : income must be taxed to the person who earns it, even if another person has a legal right to the wealth represented by the income jurisdiction variable 🗸🗸🗸 : ta costs decrease and cash flows increase when income is generated in a jurisdiction with a low tax rate ordinary income 🗸🗸🗸 : the income generated by routine sales of goods or services to customers or clients capital gains 🗸🗸🗸 : taxed at a preferential rate capitalization 🗸🗸🗸 : means that an expenditure is recorded as an asset on the balance sheet rather than as a current expense tax basis 🗸🗸🗸 : when a firm capitalizes an expenditure to a new asset account, the amount of expenditure becomes the firm's tax basis
adjusted basis 🗸🗸🗸 : the reduced basis leverage 🗸🗸🗸 : the use of leverage can reduce the purchaser's after-tax cost of the asset cost recovery book/tax differences 🗸🗸🗸 : 1. depreciation
- inventory
- organizational start up cost
- goodwill 4 steps in computing individuals taxable income 🗸🗸🗸 : total income AGI subtract standard or itemized deductions subtract exemption amounts passive activity 🗸🗸🗸 : if operates at a loss, the owner of the passive activity can deduct the loss only to the extent of income generated by other passive activities employee
