Law Outlines Federal Income Tax (Duke Zelenak) Outlines
Federal Income Taxation outline for Professor Zelenak from Duke Law...
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Tax base* Tax rates= Tax
Tax base
Calculate Gross Income
Gross income is defined in section 61as all income from whatever source derived, except otherwise provided by the statute
Exceptions to gross income defined in section 61 are exclusions
Calculate AGI (§62): AGI = GI - §62(a) deductions/ above-the-line deductions
Subtract any deductions referenced in §62
Don’t compete with standard or other itemized deductions Efficiency
Calculate taxable income (§63): below-the-line deductions
TI = AGI - personal/dependency exemptions - itemized OR standard deduction(s)
TI = GI - §62 deductions - personal/dependency exemptions - itemized OR standard deduction(s)
Use taxable income to calculate tax liability (§1 progressive marginal tax rate)
Exclusion, Deduction, Credit
A tax allowance takes the form of an exclusion if it depends on the source of an economic benefit
A tax allowance takes the form of deduction if it depends on the use of the fund
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) |
Tax rate
Average tax rate: tax liability as a percentage of taxable income
Marginal tax rate: tax rate applied to the last dollars of income
Amount realized - adjusted basis = gain realized
The tax system ignores unrealized gain. It taxes only realized tax.
The tax system do not tax twice
Policy for having a realization based system: taxing unrealized gains will cause liquidity problems, burdensome, valuation problem
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.
Phaseout
Problem 1 on page 38
151(d) AGI exceeds phaseout threshold, lose 2% of total exemptions for every 2500 in excess of phaseout threshold.
Originally, they are eligible for 5 exemptions, each is worth 3000. So...
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Federal Income Taxation outline for Professor Zelenak from Duke Law...
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