tax 2022

closed facts

have already occurred and cannot be altered

Deferral of tax on earnings

interest of plan assets, tax deferred

Holding Period

length of time an investment is held prior to sale or disposal

Gain/ losses

no exp needed

Severance taxes:

A tax imposed upon the extraction of natural resources.

record date (dividends)

specific date on which the company will determine who will receive the dividend (registered owners of stock)

Substantial Authority

standard used to determine whether a tax practitioner may recommend and a taxpayer may take a tax return position without being subject to IRS penalty.

Hierarchy of Tax Authority

statutory, administrative and judicial

contemporaneous

the records used to support a claim on your tax return are created and originated at the same time as your claimed deduction

maturity of a loan

the timeframe by which the borrower must repay the loan

conversion tax planning strategy

allow your qualified funds to be converted from fully taxable at distribution to fully tax-free at distribution

Dividend Dates

declaration date, record date, payment date

Facts Tax research

Information upon which one can base a tax position that will be sustained if challenge

Qualified Employee Discounts

-Are nontaxable if: -Discount is not on realty or investment property -Item discounted is from same line of business in which employee works -Discount cannot exceed gross profit on property or 20% of the customer price on services -Benefit is offered on nondiscriminatory basis

Shifting Tax burdens

-Burden of paying for government has shifted away from the rich but to the middle and working class Reagan halved the top tax rate and reduced capital gains taxes; George W. Bush did even more High earners contribute a smaller share to Social Security, putting the burden on poor and middle income -Tax enforcement efforts have been redirected toward the poor although the wealthy have most incentive to cheat!

Refundable Credits

-can reduce tax liability to zero and any excess can be refunded -include earned income credit, additional child tax credit

Principals of good tax law

1.Equity (ability to pay), 2. certainty (prediction) simplicity(compliance) . 3Convivence of payment (pay as you go 4Economy in collection + effective admin

Revenue Rulings:

A Revenue Ruling (abbreviated Rev.Rul.) is issued by the National Office of the IRS to express an official interpretation of the tax law as applied to specific transactions. It is more limited in application than a Regulation. A Revenue Ruling is published in an Internal Revenue Bulletin (I.R.B.).

Hybrid method:

A combination of the accrual and cash methods of accounting. That is, the taxpayer may account for some items of income on the accrual method (e.g., sales and cost of goods sold) and other items (e.g., interest income) on the cash method.

Annuity:

A fixed sum of money payable to a person at specified times for a specified period of time or for life. If the party making the payment (i.e., the obligor) is regularly engaged in this type of business (e.g., an insurance company), the arrangement is classified as a commercial annuity. A so-called private annuity involves an obligor that is not regularly engaged in selling annuities (e.g., a charity or family member).

Flat Tax:

A form of consumption tax designed to alleviate the regressivity of a value added tax (VAT). It is imposed on individuals and businesses at the same single (flat) rate.

Progressive rate structure

A graduated rate structure with rates that increase as the base increases & takes a larger percentage of income from high-income groups than from low-income groups and is based on the concept of ability to pay.

Claim of right doctrine:

A judicially imposed doctrine applicable to both cash and accrual basis taxpayers that holds that an amount is includible in income upon actual or constructive receipt if the taxpayer has an unrestricted claim to the payment. For the tax treatment of amounts repaid when previously included in income under the claim of right doctrine, see § 1341.

Revenue Procedures:

A matter of procedural importance to both taxpayers and the IRS concerning the administration of the tax laws is issued as a Revenue Procedure (abbreviated Rev.Proc.). A Revenue Procedure is published in an Internal Revenue Bulletin (I.R.B.).

Health Savings Account (HSA):

A medical savings account created in legislation enacted in December 2003 that is designed to replace and expand Archer Medical Savings Accounts. § 223.

Accrual method:

A method of accounting that recognizes expenses as incurred and income as earned. In contrast to the cash basis of accounting, expenses need not be paid to be deductible, nor need income be received to be taxable. § 446(c)(2).

Value added tax (VAT):

A national sales tax that taxes the increment in value as goods move through the production process. A VAT is much used in the majority of countries but has not yet been incorporated as part of the U.S. Federal tax structure.

Tax benefit rule:

A provision that limits the recognition of income from the recovery of an expense or a loss properly deducted in a prior tax year to the amount of the deduction that generated a tax saving. Assume that last year Gary had medical expenses of $4,000 and adjusted gross income of $30,000. Because of the AGI limitation, Gary could deduct only $1,000 of these expenses [$4,000 − (10% × $30,000)]. If this year Gary is reimbursed in full by his insurance company for the $4,000 of expenses, the tax benefit rule limits the amount of income from the reimbursement to $1,000 (the amount previously deducted with a tax saving).

Sales tax:

A state- or local-level tax on the retail sale of specified property. Generally, the purchaser pays the tax, but the seller collects it, as an agent for the government. Various taxing jurisdictions allow exemptions for purchases of specific items, including certain food, services, and manufacturing equipment. If the purchaser and seller are in different states, a use tax usually applies.

Tax Table:

A table that is provided for taxpayers with less than $100,000 of taxable income. Separate columns are provided for single taxpayers, married taxpayers filing jointly, heads of households, and married taxpayers filing separately. § 3.

Child tax credit:

A tax credit based solely on the number of qualifying children under age 17. The maximum credit available is $2,000 per qualifying child. (In addition, a $500 nonrefundable credit is available for qualifying dependents other than qualifying children.) A qualifying child must be claimed as a dependent on a parent's tax return and have a Social Security number to qualify for the credit. Taxpayers who qualify for the child tax credit may also qualify for a supplemental credit. The supplemental credit is treated as a component of the earned income credit and is therefore refundable. The credit is phased out for higher-income taxpayers. (Different rules applied for 2021.) § 24. See also dependent tax credit.

Gift tax:

A tax imposed on the transfer of property by gift. The tax is imposed upon the donor of a gift and is based on the fair market value of the property on the date of the gift. § 2501.

Citator:

A tax research resource that presents the judicial history of a court case and traces the subsequent references to the case. When these references include the citating cases' evaluations of the cited case's precedents, the research can obtain some measure of the efficacy and reliability of the original holding.

Working condition fringes:

A type of fringe benefit received by the employee that is excludible from the employee's gross income. It consists of property or services provided (paid or reimbursed) by the employer for which the employee could take a tax deduction if the employee had paid for them. § 132(d).

Personalty:

All property that is not attached to real estate (realty) and is movable. Examples of personalty are machinery, automobiles, clothing, household furnishings, and personal effects.

FICA Tax:

An abbreviation that stands for Federal Insurance Contributions Act, commonly referred to as the Social Security tax. The FICA tax is comprised of the Social Security tax (old age, survivors, and disability insurance) and the Medicare tax (hospital insurance) and is imposed on both employers and employees. The employer is responsible for withholding from the employee's wages the Social Security tax at a rate of 6.2 percent on a maximum wage base and the Medicare tax at a rate of 1.45 percent (no maximum wage base). The maximum Social Security wage base for 2022 is $147,000 and for 2021 is $142,800.

Flexible spending plans:

An employee benefit plan that allows the employee to take a reduction in salary in exchange for the employer paying benefits that can be provided by the employer without the employee being required to recognize income (e.g., medical and child care benefits). Contributions to a flexible spending plan are limited to $2,850 for 2022. § 125(i).

Cafeteria plan:

An employee benefit plan under which an employee is allowed to select from among a variety of employer-provided fringe benefits. Some of the benefits may be taxable, and some may be statutory nontaxable benefits (e.g., health and accident insurance and group term life insurance). The employee is taxed only on the taxable benefits selected. A cafeteria benefit plan is also referred to as a flexible benefit plan. § 125.

FUTA Tax:

An employment tax levied on employers. Jointly administered by the Federal and state governments, the tax provides funding for unemployment benefits. FUTA applies at a rate of 6.0 percent on the first $7,000 of covered wages paid during the year for each employee. The Federal government allows a credit for FUTA paid (or allowed under a merit rating system) to the state. The credit cannot exceed 5.4 percent of the covered wages. §§ 3301-3311.

Head-of-household:

An unmarried individual who maintains a household for another and satisfies certain conditions set forth in § 2(b). This status enables the taxpayer to use a set of income tax rates that are lower than those applicable to other unmarried individuals but higher than those applicable to surviving spouses and married persons filing a joint return.

Cash surrender value of life insurance

Asset (Long-Term Investment). The future potential insurance payout in the event that a key member of company leadership passes away.

De minimis fringe:

Benefits provided to employees that are too insignificant to warrant the time and effort required to account for the benefits received by each employee and the value of those benefits. Such amounts are excludible from the employee's gross income. § 132.

Capital Property

Capital property is also commonly referred to as a capital asset. This is property that on a sale or other disposition gives rise to a capital gain or capital loss. Capital property can be: Depreciable property, such as vehicles, equipment or machinery used in a business, and buildings.

Fringe benefits:

Compensation or other benefit received by an employee that is not in the form of cash. Some fringe benefits (e.g., accident and health plans, group term life insurance) may be excluded from the employee's gross income and therefore are not subject to the Federal income tax.

Compensatory damages:

Damages received or paid by the taxpayer can be classified as compensatory damages or as punitive damages. Compensatory damages are paid to compensate one for harm caused by another. Compensatory damages received on account of physical injuries are excludible from the recipient's gross income. § 104(a)(2).

Punitive damages:

Damages received or paid by the taxpayer can be classified as compensatory damages or as punitive damages. Punitive damages are those awarded to punish the defendant for gross negligence or the intentional infliction of harm. Such damages are includible in gross income. § 104(a)(2).

Qualified Dividends

Dividends received on shares of common stock held by the taxpayer for more than 60 days of the 120-day period beginning 60 days before the ex-dividend date.

Dependent tax credit:

For 2018 through 2025, the TCJA of 2017 replaced the dependency exemption with a $500 nonrefundable credit. This credit can be claimed for dependents who are not a qualifying child or under the age of 17. The dependent must be a citizen or resident of the United States. § 24(h).

Imputed interest:

For certain long-term sales of property, under §§ 483 and 1274 the IRS can convert some of the gain from the sale into interest income if the contract does not provide for a minimum rate of interest to be paid by the purchaser. The seller recognizes less long-term capital gain and more ordinary income (interest income). Imputed interest rules also apply on certain below-market loans under § 7872.

Partnership:

For income tax purposes, a partnership includes a syndicate, group, pool, or joint venture as well as ordinary partnerships. In an ordinary partnership, two or more parties combine capital and/or services to carry on a business for profit as co-owners. § 7701(a)(2).

Income:

For tax purposes, an increase in wealth that has been realized.

Research tools

Google, Thomas Reuters checkpoint edge, BNA portfolios, specialty services

Chapter 5:

Gross Income; Exclusions

open facts

Have not yet occurred, such as the facts associated with a proposed transaction

Ordinary Property

IDFK a tax paid on property owned by an individual or other legal entity

Constructive receipt:

If income is unqualifiedly available although not physically in the taxpayer's possession, it still is subject to the income tax. An example is accrued interest on a savings account. Under the constructive receipt concept, the interest is taxed to a depositor in the year available, rather than the year actually withdrawn. The fact that the depositor uses the cash basis of accounting for tax purposes is irrelevant. See Reg. § 1.451-2.

Unearned income:

Income received but not yet earned. Normally, such income is taxed when received, even for accrual basis taxpayers.

Gross income:

Income subject to the Federal income tax. Gross income does not include all economic income. That is, certain exclusions are allowed (e.g., interest on municipal bonds). For a manufacturing or merchandising business, gross income usually means gross profit (gross sales or gross receipts less cost of goods sold). § 61 and Reg. § 1.61-3(a).

Filing status:

Individual taxpayers are placed in one of five filing statuses each year (single, married filing jointly, married filing separately, surviving spouse, or head of household). Marital status and household support are key determinants. Filing status is used to determine the taxpayer's filing requirements, standard deduction, eligibility for certain deductions and credits, and tax liability.

Primary Authority

Maybe the IRS or orgs likeminded

Itemized deductions:

Personal expenditures allowed by the Code as deductions from adjusted gross income. Examples include certain medical expenses, interest on home mortgages, state income taxes, and charitable contributions. Itemized deductions are reported on Schedule A of Form 1040.

Hierarchy of sources of tax law

Primary: statuary law/admin law/ judicial interp, secoundary: not authority: editoral info and what others do

Reasons for tax laws

Raise revenue (Primary pbj) Eco social Equity political

Tax Rate Schedules:

Rate schedules that are used by upper-income taxpayers and those not permitted to use the tax table. Separate rate schedules are provided for married individuals filing jointly, heads of households, single taxpayers, estates and trusts, and married individuals filing separate returns. § 1.

Realty:

Real Estate

Scholarship:

Scholarships are generally excluded from the gross income of the recipient unless the payments are a disguised form of compensation for services rendered. However, the Code imposes restrictions on the exclusion. The recipient must be a degree candidate. The excluded amount is limited to amounts used for tuition, fees, books, supplies, and equipment required for courses of instruction. Amounts received for room and board are not eligible for the exclusion. § 117.

No-additional-cost service:

Services the employer may provide the employee at no additional cost to the employer. Generally, the benefit is the ability to utilize the employer's excess capacity (e.g., vacant seats on an airliner). Such amounts are excludible from the recipient's gross income. § 132(b).

Chapter 3:

Tax Formula and Tax Determination; An Overview of Property Transactions

Employment Taxes:

Taxes that an employer must pay on account of its employees. Employment taxes include FICA (Federal Insurance Contributions Act) and FUTA (Federal Unemployment Tax Act) taxes. Employment taxes are paid to the IRS in addition to income tax withholdings at specified intervals. Such taxes can be levied on the employees, the employer, or both.

Final Regulations:

The U.S. Treasury Department Regulations (abbreviated Reg.) represent the position of the IRS as to how the Internal Revenue Code is to be interpreted. Their purpose is to provide taxpayers and IRS personnel with rules of general and specific application to the various provisions of the tax law. Regulations are published in the Federal Register and in all tax services.

Marginal Tax Rate (MTR)

The additional tax liability a person faces divided by his or her additional taxable income. It is the percentage of an extra dollar of income earned that must be paid in taxes. It is the marginal tax rate that is relevant in personal decision-making.

Accelerated death benefits:

The amount received from a life insurance policy by the insured who is terminally ill or chronically ill. Any realized gain may be excluded from the gross income of the insured if the policy is surrendered to the insurer or is sold to a licensed viatical settlement provider. § 101(g).

Taxable year:

The annual period over which income is measured for income tax purposes. Most individuals use a calendar year, but many businesses use a fiscal year based on the natural business year. Certain entities, including S corporations, have a required taxable year. §§ 441, 706, and 1378.

Original issue discount:

The difference between the issue price of a debt obligation (e.g., a corporate bond) and the maturity value of the obligation when the issue price is less than the maturity value. OID represents interest and must be amortized over the life of the debt obligation using the effective interest method. The difference is not considered to be original issue discount for tax purposes when it is less than one-fourth of 1 percent of the redemption price at maturity multiplied by the number of years to maturity. §§ 1272 and 1273(a)(3).

Realization principle

The generally accepted accounting principle that determines when revenue should be recorded in the accounting records. Revenue is realized when services are rendered to customers or when goods sold are delivered to customers.

Standard deduction:

The individual taxpayer can either itemize deductions or take the standard deduction. The amount of the standard deduction depends on the taxpayer's filing status (single, head of household, married filing jointly, surviving spouse, or married filing separately). For 2022, the amount of the standard deduction ranges from $12,950 (for single) to $25,900 (for married, filing jointly). Additional standard deductions of either $1,400 (for married taxpayers) or $1,750 (for single taxpayers) are available if the taxpayer is blind or age 65 or over. Limitations exist on the amount of the standard deduction of a taxpayer who is another taxpayer's dependent. The standard deduction amounts are adjusted for inflation each year. § 63(c).

Tax research:

The method used to determine the best available solution to a situation that possesses tax consequences. Both tax and nontax factors are considered.

Personal exemptions:

The tax law provides an exemption for each individual taxpayer and an additional exemption for the taxpayer's spouse if a joint return is filed. An individual may also claim a dependency exemption for each dependent, provided certain tests are met. The TCJA of 2017 suspended the deduction for exemptions for tax years after 2017 (and through 2025).

Letter rulings:

The written response of the IRS to a taxpayer's request for interpretation of the revenue laws with respect to a proposed transaction (e.g., concerning the tax-free status of a reorganization). Not to be relied on as precedent by other than the party who requested the ruling.

Qualified transportation fringes:

Transportation benefits provided by the employer to the employee. If these benefits are reimbursed by the employer, they are excludible from gross income by the employee, but not deductible by the employer after 2017. Such benefits include (1) transportation in a commuter highway vehicle between the employee's residence and the place of employment, (2) a transit pass, and (3) qualified parking. Qualified transportation fringes are excludible from the employee's gross income to the extent categories (1) and (2) above do not exceed $280 per month in 2022 and category (3) does not exceed $280 per month in 2022. These amounts are indexed annually for inflation. § 132(f).

Determination letters:

Upon the request of a taxpayer, the IRS will comment on the tax status of a completed transaction. Determination letters frequently are used to determine whether a retirement or profit sharing plan qualifies under the Code and to determine the tax-exempt status of certain nonprofit organizations.

Documentation

Used for IDing tax laws by the use of rulings from old cases

Surviving spouse:

When a husband or wife predeceases the other spouse, the survivor is known as a surviving spouse. Under certain conditions, a surviving spouse may be entitled to use the income tax rates in § 1(a) (those applicable to married persons filing a joint return) for the two years after the year of death of his or her spouse. § 2(a).

Recovery of capital doctrine:

When a taxable sale or exchange occurs, the seller may be permitted to recover his or her investment (or other adjusted basis) in the property before gain or loss is recognized.

Chapter 2:

Working with the Tax Law

Indirect tax

a tax levied on goods or services rather than on persons or organizations

direct tax

a tax paid directly by the person or organization on whom it is levied

Sources for tax laws

congress passes--> Treasury and internal reve explian and interp--> courts--> congress completes circle by reacting to new ones

Declaration Date of Dividends

date on which board of directors declares the cash dividend to be paid

annuity

payment received every year

Tax Planning Strategies

timing, income shifting, conversion

impute

to attribute to someone

Timing

year-endd for tax being smart