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Introduction Outline

Law Outlines > Federal Income Tax (Duke Zelenak) Outlines

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Introduction I.

Tax base* Tax rates= Tax a. Tax base i. 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 ii. Calculate AGI (SS62): AGI = GI - SS62(a) deductions/
above-the-line deductions

1. Subtract any deductions referenced in SS62

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

Credits

iii. Calculate taxable income (SS63): below-the-line deductions

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

2. TI = GI - SS62 deductions - personal/dependency exemptions - itemized OR standard deduction(s) iv. Use taxable income to calculate tax liability (SS1 progressive marginal tax rate) b. Exclusion, Deduction, Credit i. A tax allowance takes the form of an exclusion if it depends on the source of an economic benefit ii. A tax allowance takes the form of deduction if it depends on the use of the fund iii. A tax credit directly reduces tax liability 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)

II. III.

Tax rate a. Average tax rate: tax liability as a percentage of taxable income b. Marginal tax rate: tax rate applied to the last dollars of income Amount realized - adjusted basis = gain realized a. The tax system ignores unrealized gain. It taxes only realized tax.

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