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Law Outlines Federal Income Tax (Duke Zelenak) Outlines

Introduction Outline

Updated Introduction Notes

Federal Income Tax (Duke Zelenak) Outlines

Federal Income Tax (Duke Zelenak)

Approximately 51 pages

Federal Income Taxation outline for Professor Zelenak from Duke Law...

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Introduction

  1. Tax base* Tax rates= Tax

    1. Tax base

      1. Calculate Gross Income

        1. Gross income is defined in section 61as all income from whatever source derived, except otherwise provided by the statute

        2. Exceptions to gross income defined in section 61 are exclusions

      2. Calculate AGI (§62): AGI = GI - §62(a) deductions/ above-the-line deductions

        1. Subtract any deductions referenced in §62

        2. Don’t compete with standard or other itemized deductions Efficiency

      3. Calculate taxable income (§63): below-the-line deductions

        1. TI = AGI - personal/dependency exemptions - itemized OR standard deduction(s)

        2. TI = GI - §62 deductions - personal/dependency exemptions - itemized OR standard deduction(s)

      4. Use taxable income to calculate tax liability (§1 progressive marginal tax rate)

    2. Exclusion, Deduction, Credit

      1. A tax allowance takes the form of an exclusion if it depends on the source of an economic benefit

      2. A tax allowance takes the form of deduction if it depends on the use of the fund

      3. A tax credit directly reduces tax liability

Credits Deductions/ exclusions
Tax liability reduced by value-stated amount Stated amount * marginal tax rate
Maybe refundable (if credits > tax liability) Not refundable
Don’t have to itemize May have to itemize (deductions only)
  1. Tax rate

    1. Average tax rate: tax liability as a percentage of taxable income

    2. Marginal tax rate: tax rate applied to the last dollars of income

  2. Amount realized - adjusted basis = gain realized

    1. The tax system ignores unrealized gain. It taxes only realized tax.

    2. The tax system do not tax twice

    3. Policy for having a realization based system: taxing unrealized gains will cause liquidity problems, burdensome, valuation problem

    4. No adjustment for inflation for the adjusted basis. Adjustment is only in the rate part (for the brackets). On the base side, you don’t do the adjustment.

  3. Phaseout

    1. Problem 1 on page 38

      1. 151(d) AGI exceeds phaseout threshold, lose 2% of total exemptions for every 2500 in excess of phaseout threshold.

      2. Originally, they are eligible for 5 exemptions, each is worth 3000. So...

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