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An Introduction To Tax: 2021 Edition
An Introduction To Tax: 2021 Edition
An Introduction To Tax: 2021 Edition
Entities
2021 Edition
Chapter 1
An Introduction
to Tax
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written consent of McGraw-Hill Education.
Learning Objectives
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Who Cares about Taxes?
(2 of 3)
• Politicians:
– Politicians often distinguish themselves from
their opponents based on their tax rhetoric.
– Voters must have basic knowledge of taxes to
evaluate the merits of alternative tax
proposals.
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Who Cares about Taxes?
(3 of 3)
• Individuals:
– Would you like to own a home?
Tax deductions for home mortgage interest and real
estate taxes can reduce the after-tax costs of owning
a home.
– Would you like to retire?
Understanding the tax-advantaged methods of
saving for retirement can increase the after-tax value
of your retirement nest egg.
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What Qualifies as a Tax?
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How to Calculate a Tax
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Different Ways to Measure Tax
Rates
• Marginal Tax Rate: the tax rate that
applies to the next additional increment of a
taxpayer’s taxable income.
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Tax Rates Solution
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Tax Rate Structures
10
8
Tax Rate
Proportional
6 Progressive
Regressive
4
0
Low Medium High
Tax Base
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Tax Rate Structures Example
40
35
30
Tax Rate
25 Proportional
20 Progressive
15 Regressive
10
5
0
Low Medium High
Tax Base
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Types of Taxes
• Federal Taxes:
– Income taxes
– Employment and unemployment taxes
– Excise taxes
– Transfer taxes
• State and Local Taxes:
– Income taxes
– Sales and use taxes
– Property taxes
– Excise taxes
• Implicit Taxes
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Federal Taxes (1 of 2)
• Income Taxes
– Represents approximately 56.5 percent of all tax
revenues collected in the United States (individuals 47.3
percent and corporations 9.2 percent).
– Levied on individuals, corporations, estates, and trusts.
• Employment and Unemployment Taxes
– Second-largest group of taxes imposed by the U.S.
government
– Employment taxes include the OASDI (Social Security
tax) and the MHI tax (Medicare tax).
– Unemployment taxes fund temporary unemployment
benefits for individuals terminated from their jobs
without cause.
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Federal Taxes (2 of 2)
• Excise Taxes
– Third-largest group of taxes imposed by the
U.S. government
– Levied on the quantity of products sold
• Estate and Gift Taxes
– Levied on the fair market values of wealth
transfers upon death or by gift
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State and Local Taxes (1 of 2)
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State and Local Taxes (2 of 2)
• Income Taxes
– Most state taxable income calculations largely
conform to the federal taxable income
calculations, with a limited number of
modifications.
• Excise Taxes
– States typically impose excise taxes on items
subject to federal excise tax.
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Implicit Taxes
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Evaluating Alternative Tax
Systems
• Sufficiency: involves assessing the aggregate size
of the tax revenues that must be generated and
making sure that the tax system provides these
revenues.
• Equity: how the tax burden should be distributed
across taxpayers.
• Certainty: taxpayers should be able to determine
when to pay the tax, where to pay the tax, and how
to determine the tax.
• Convenience: tax system should be designed to be
collected without undue hardship to the taxpayer.
• Economy: should minimize the compliance and
administration costs associated with the tax system.
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Sufficiency
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End of Presentation
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