ACC 377 Lecture Notes - Lecture 2: Standard Deduction, Sole Proprietorship, C Corporation
-taxes should be levied based on the amount the taxpayer has the ability to pay
-US- taxable income (net)(income - deductions and losses)
-US- progressive rate - make more money, pay more taxes
-there is not tax on the increase in the value of assets
-LOOKS AT BIG PICTURE
Administrative convenience concept
-items may be omitted from the tax base whenever the cost of implementing a concept exceeds the
benefit of using it
-ex: fringe benefits (not worth taxing)
-ex: standard deduction allowed for everyone
-applies to income and deductions
Arm's length transaction
-standard used to determine how a transaction would be carried out if the parties were independent of
each other (not related)
-each party is acting for himself
-economic reality of transaction
Pay as you go concept
-taxpayers pay tax as they generate income
-there is quarterly estimated holdings for non-employee income and corporations
Entity concept (3 types)
-all formed under state law
1. TAXABLE ENTITY
-individuals, C corporations, estates, and some trusts
-pay tax based on their taxable income
2. CONDUIT ENTITY
-nontaxable reporting entities (don't pay taxes)
-partnerships, S corporations, and some trusts
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-tax attributes flow through the entity to the owner
SUITO CONDUIT ENTITY
-sole proprietorship
-everything put on schedule C (part of 1040)
-assets owned by business NOT owner
each tax unit must keep separate records and report the results of its operations separate and apart
from other tax units.
Assignment of income concept
-whoever earns the income owes the tax on that income
-pass title of income producing property to person you want to receive income (only legal way to assign
income)
Annual Accounting Period Concept
-each year is separate from all others
-calendar year is most common
-fiscal year (ends on day of end of month)
ALSO taxpayer must select accounting method to use
-CASH BASIS- taxed on income as it is received and deductions as they are paid
-ACCRUAL BASIS- income as earned and deductions as incurred
HYBRID METHOD
Tax Benefit Rule
-recovery of amount deducted in prior year is included in income of current year
-EX: receive reimbursement in 2014, put reimbursement in 2014 income
Substance over form (DUCK RULE)
-looks at reality of transaction
-what did the taxpayer mean to do with the transaction
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Taxes should be levied based on the amount the taxpayer has the ability to pay. Us- taxable income (net)(income - deductions and losses) Us- progressive rate - make more money, pay more taxes. There is not tax on the increase in the value of assets. Items may be omitted from the tax base whenever the cost of implementing a concept exceeds the benefit of using it. Standard used to determine how a transaction would be carried out if the parties were independent of each other (not related) There is quarterly estimated holdings for non-employee income and corporations. All formed under state law: taxable entity. Pay tax based on their taxable income: conduit entity. Tax attributes flow through the entity to the owner. Everything put on schedule c (part of 1040) Assets owned by business not owner each tax unit must keep separate records and report the results of its operations separate and apart from other tax units.
