University:
University of North Carolina at Charlotte
Course:
MBAD 6131 | Management Accounting
Academic year:

2023
Views:

216

Pages:

3
Author:

vandropvp

Income Tax Class Notes Page 1 I. Introduction to Income Tax Income tax defined: A tax imposed by governments on individuals and entities based on their earnings or income. Importance of income tax: Primary source of revenue for governments, used to fund public services and programs. II. Taxation Principles Progressive Taxation: Higher income individuals pay a higher percentage of their income in taxes. Supports wealth redistribution and social equity. Marginal Tax Rate vs. Average Tax Rate: Marginal tax rate: Tax rate applied to the next dollar earned. Average tax rate: Total tax paid divided by total income. Tax Deductions, Credits, and Exemptions: Deductions reduce taxable income (e.g., mortgage interest, charitable contributions). Credits directly reduce tax liability (e.g., child tax credit). Exemptions exclude certain income from taxation (e.g., personal exemptions). Page 2 III. Individual Income Tax Filing Status: Single, married filing jointly, married filing separately, head of household. Determines tax rates and deductions. Taxable Income Calculation: Gross income - adjustments = adjusted gross income (AGI). AGI - deductions and exemptions = taxable income. Tax Rates and Brackets: Tax rates increase as taxable income increases. Tax brackets determine the range of income subject to a specific rate. IV. Business Income Taxation Sole Proprietorships and Partnerships: Business income flows through to owners' personal tax returns. Self-employment tax for sole proprietors. Corporations: Separate legal entities taxed at corporate rates. Dividends paid to shareholders are taxed again on personal returns. Pass-Through Entities: S Corporations and Limited Liability Companies (LLCs). Income is passed through to owners' personal returns. Page 3 V. Tax Planning and Strategies Timing of Income and Deductions: Deferring income to lower tax years. Accelerating deductions to decrease taxable income. Tax-Advantaged Accounts: Retirement accounts (e.g., 401(k), IRA). Health Savings Accounts (HSAs) for medical expenses. Tax Avoidance vs. Tax Evasion: Legal strategies to minimize tax liability (tax avoidance). Illegal actions to evade taxes (tax evasion). VI. Tax Credits and Incentives Child and Dependent Care Credit: Helps offset costs of childcare. Percentage of qualifying expenses. Education Credits: American Opportunity Credit and Lifetime Learning Credit. Reduce tax liability for education expenses. Alternative Minimum Tax (AMT): Ensures higher-income individuals pay a minimum level of tax. Complex calculations and exemptions.

Income Tax Essentials: Key Concepts and Strategies

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