Current Tax System
• Why do we have an income tax?
o To fund government programs
• What other types of taxes are individuals and/or professionals subject to?
o Estate tax, gift tax, self-employment tax, social security, medicare, unemployment taxes, excise, sales & use, property
• How do tax laws affect decisions made by individuals? Businesses?
o May determine how much an individual decides to gift or donate, how and where they choose to invest their money, whether they set up a trust or estate, do or do not purchase particular goods (eg might avoid cigarettes because of the excise tax, but may buy an electric vehicle for the tax benefits). May also be a factor in determining where they move or whether they take a job in a city/state with greater taxes. For businesses, it can help determine how they choose to structure (sole proprietor ...view middle of the document...
Allowed to use client estimates if they are reasonable. Inform client if receipts or other docs are required. Make every effort to answer a question on a form. If error is found, advise client to fix it, but do not contact IRS about it.
• What are the economic, social, equity, and political considerations that justify various aspects of the tax law?
o Economic: Can regulate the economy and encourage certain types of business
o Social: Can encourage good behaviours or discourage bad behaviours (such as smoking)
o Equity: Alleviate the effect of multiple taxation, wherewithal to pay, mitigate the effect of the annual accounting period, recognize the negative effects of inflation
o Political: Special interest legislation, local and state law impacts
• What is the alternative minimum tax and how does it apply to individual taxpayers?
o It is a minimum amount that a taxpayer must pay, even if other methods might produce a lower tax amount. It is to help prevent tax avoidance and abuse of loopholes.
• What are the rules pertaining to corporate taxation?
o Can use cash or accrual basis, but must stick to that method
o If changing from cash to accrual or vice versa, must stick with the new method (not switch back and forth)
o The corporation pays a tax separate from the owners
• What are trusts, estates, beneficiaries, and other parties?
o A trust is an agreement about property that is held for beneficiaries. It is a separate tax entity.
o Estates are created at the death of every individual. Must collect and conserve the individual’s assets, take care of liabilities, and distribute remaining assets to heirs identified in a will
o A beneficiary is someone who receives an asset from an estate or trust
• How are the accounting and taxable income of a trust or estate and the related taxable income of the beneficiaries determined?
o Beneficiaries receive their assets and are taxed on what they receive. What remains in the trust/estate is subject to its own tax.