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Accounting 430: Taxes and Business Decisions

This document summarizes an accounting class about taxes and business decisions. It discusses the class agenda which includes reviewing homework on who is most impacted by taxes and the average cost of taxes as a percentage of income. The class will also review tax authority sources and standards for a good tax system, including sufficiency, efficiency, and fairness. For homework, students are asked to list different taxes they encounter and determine who is impacted by the most taxes. The class will discuss these assignments and selected homework problems on taxes and their impact on individuals and businesses.

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35 views

Accounting 430: Taxes and Business Decisions

This document summarizes an accounting class about taxes and business decisions. It discusses the class agenda which includes reviewing homework on who is most impacted by taxes and the average cost of taxes as a percentage of income. The class will also review tax authority sources and standards for a good tax system, including sufficiency, efficiency, and fairness. For homework, students are asked to list different taxes they encounter and determine who is impacted by the most taxes. The class will discuss these assignments and selected homework problems on taxes and their impact on individuals and businesses.

Uploaded by

gaochcang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 30

#1-1

Accounting 430: Taxes and Business


Decisions

Welcome
Spring, 2017

#1-2

Agenda- January 12, 2017


Discuss homework assignments
Day in the life with taxes: Who is the most impacted by taxes?
What is the average cost for all taxes paid as percent of income?
Review of selected homework problems from Chapter 1

Review sources of tax authority


Chapter 2: Policy standards for a good tax
Sufficiency of taxes
Efficiency and convenience of taxes
Fairness of taxes

Class Activity- Political process:


Revenues and expenditures and the dynamic role of taxes

#1-3

Homework Assignment- Listing of Taxes


Day in the life of a you as a taxpayer.
Assignment: Please write up a listing of the different taxes you
see and hear during the next several days before class. Which
one of us is impacted by the most different taxes?
What were the different taxes that impacted you during the days between
our class on Tuesday (Day in the life with taxes)?
Federal?
State?
Local?
Foreign?
Who in our class was the most impacted by taxes?

#1-4

Homework Assignments- Listing of Taxes

Federal

State

Local

Foreign

Individual, Corporate,
Trust, etc. income taxes

Individual, Corporate,
Trust, income taxes

Individual & Corporate


gross receipts taxes

Individual, Corporate
etc. income taxes, cross
border taxes,
withholding taxes

Employment taxes
FICA/HI & SET

Sales and Use taxes

Real Estate taxes

Employment related
taxes- Social taxes

Unemployment taxes
FUTA

Unemployment taxes
SUTA

Personal Property taxes


& intangible taxes

Value added taxes


(VAT)

Excise taxes e.g.


gasoline, airline, tires

Excise taxes e.g.


Cigarettes, alcohol, etc.

Entertainment, hotels,
rental cars, etc. taxes

Real property taxes

Transfer taxes
estate and gift taxes

Transfer taxes
Inheritance taxes

Transfer taxes; Court


Fiduciary Account fees

Transfer taxes

What are Other forms of taxes? State Lotteries, legalized gaming?


What about a national sales tax or VAT versus higher income tax?

#1-5

Homework Assignment- Listing of Taxes


How do taxes impact us every day (or week)?

Example:
What are the taxes on your payroll stubs?
How much sales tax did we pay at Starbucks?
Did you fill up your gas tank?

#1-6

Homework Assignment- Listing of Taxes


Volunteers: What we find?

What is the average cost per person of all taxes paid as a


percent of income over the year?
What makes up this amount or what is included (e.g. federal
and state income taxes or other taxes)? What other taxes?
Why is this so hard?

#1-7

Homework Assignments- Listing of Taxes


What did we learn?
How pervasive are taxes- Federal, state, local and even foreign
taxes?
Individual or personal?
Businesses?
Local, national or global?

Taxes impact us everyday across our personal and business


decisions and activities

#1-8

Homework Assignments
Selected Homework Problems:

Question & Problems for Discussion (D):


1-5 & 1-12

Application Problems (A):


1-3, 1-7 & 1-9

Issues Recognition Problems (I):


1-7

1-9

What are the Sources of Tax Law Guidance?


Statutory authority
Internal Revenue Code
Committee Reports and Blue Book (Background)

Administrative interpretations
Treasury regulations
IRS Revenue Rulings. Revenue Procedures, Notices, Private Letter
Rulings etc.

Judicial authority & interpretations


Supreme Court
Appellate courts
Other courts
Tax, District, bankruptcy, and Claims Courts

#1-10

Payroll stubs

Medicare: federal tax 1.45%


Social security: federal tax 7.65%, 6.5%
Health insurance (FICA)
Social (FICA)
Unemployment: federal/state 6%
Federal income tax (withholding), state withholding
No AZ, yes NY/Connecticut
Income tax withholding is a prepayment (may get some of them back)
Purpose of W-4 is to determine how much is withheld/exemptions
Exemptions denotes how many dependents you have
Conservative-0, charitable deductions - 1,2 (depending on interest
deduction)
Once over 200k, additional Medicare tax

#1-11

Chapter 2
Policy Standards for a Good Tax

#1-12

Good Tax Policy


What is meant by Tax Policy?

What is a good taxIs there ever a good tax?


Why is this so important?

#1-13

Good Tax Policy


What are the Standards of a Good Tax?
Taxes should be sufficient!
Taxes should be efficient & convenient!
- Capital gains: simple rate, come up with the amount ease of
calculation and understanding
Taxes should be fair!

#1-14

Good Tax Policy


What is sufficient for tax purposes?
Gross Receipts- taxes, user fees, penalties, interest, etc.
Less: public goods, services, subsidies, etc.
Operating surpluses or deficits

Can you balance the budget? How many of us use credit cards and
dont pay them off at the end of the month?

#1-15

Good Tax Policy


What is sufficient for tax purposes?
Budgeted expenditures? Earmarked amounts? Mandatory expenses?
Contingencies-Economic downturns, military action, etc.?
Interest cost? Debt reduction?
Others?

What are the consequences if the taxes are not sufficient?


1970 national debt was 380 Billion with interest of 14 Billion
2015 when national debt was 18.4 Trillion and interest of 402 Billion

Why is balanced approach to budget & taxes so important to


business people and consumers?

#1-16

Good Tax Policy


What are convenient and efficient taxes?

What are fair and equitable taxes?

#1-17

Good Tax Policy


Convenient & Efficient

Fair and Equitable

Ease of understanding by
taxpayers
Compute with certainity
Minimize noncompliance
Minimal administrative costs
for the government
Convenient payment options
and alternatives
Eliminates loop-holes
Economic efficiency

Tax the other person


Ability to pay principle

Neutral impact
Influence behavior

Horizontal (Equal base) &


vertical equity (Fair rate)

Rate structure

Progressive ?
Proportionate?
Regressive ?

Redistribution of wealth
through the use of taxes
Perception of equity is in
the eyes of the beholder

#1-18

Good Tax Policy


Forecasting Tax Impact

Behaviors Impact on Taxes

Static forecasts

Income effect

Base x Rate = Revenues


Movement the same

Net take home remains same

Substitution effect
Adjusts where you invest

Dynamic forecasts
Base x Rate= Revenues
Considers multiple variables

Supply-side economics
Tax reduction increases supply of
money to stimulate economyEarly 80s

#1-19

Good Tax Policy

Should we consider preferences, behaviors, equity, socialeconomic matters in determining tax policy or is it to late?

Business and consumers generally want stability &


predictability

#1-20

Good Tax Policy


What is meant by marginal versus average income tax
rates?
(See the rate schedule in Appendix C p.614 for single taxpayer)
Marginal rate- What is the next dollar taxed at?
$37,000 of income is taxed at the marginal rate of 15% for a single
taxpayer- Rate of tax on the next dollar earned is 15%.
What if it was 38,000?

Average rate- What is the average of taxes paid over total


income earned?
$38,000 of income would have tax of $5271.25 or an average tax rate of
13.87% for a single taxpayer ($5271.25/ 38,000)

#1-21

Political Process of Federal Taxes


Various Branches of Government involved:
Legislative Branch- Senate and House of Reps
House Ways and Means Committee
Senate Finance Committee
Joint Conference Committee
Joint Committee on Taxation supports Congress

Executive Branch- President


Office of Management and Budget, Cabinet- Secretary of Treasury,
Council of Economic Advisors, and Whitehouse staff

Constituents- The People (and Lobbyists)

#1-22

Political Process Federal Taxes


The Joint Committee on Taxation is a nonpartisan committee of
the United States Congress, originally established under the
Revenue Act of 1926. The Joint Committee operates with an
experienced professional staff of Ph.D economists, attorneys, and
accountants, who assist Members of the majority and minority
parties in both houses of Congress on tax legislation.

https://www.jct.gov/about-us/overview.html

#1-23

Political Process Federal Taxes


Who writes the tax laws?
Congress does; the House of Representatives initiates the bills
involving revenues (except when Senate attaches tax legislation to
an existing bill):
House Ways and Means Committee
Considers any tax bills before they are presented to the full House of
Representatives

Senate Finance Committee


Receives the bill from the House and considers its desired changes and its own
version of a tax bill
It is common to have a Senate and House version

#1-24

Political Process Federal Taxes


What if the Senate and House Bills differ?
Joint Conference Committee is temporary, ad hoc panel
composed of House and Senate conferees which is formed for the
purpose of reconciling differences in legislation that has passed
both chambers. Conference committees are usually convened to
resolve differences on major and controversial legislation. Such as
tax legislation.
https://www.senate.gov/reference/glossary_term/conference_committee.htm

Overview of Taxes

#1-26

Political Process for Federal Taxes

Federal

State

Local

Foreign

Individual, Corporate,
Trust, etc. income taxes

Individual, Corporate,
Trust, income taxes

Individual & Corporate


gross receipts taxes

Individual, Corporate
etc. income taxes, cross
border taxes,
withholding taxes

Employment taxes
FICA/HI & SET

Sales and Use taxes

Real Estate taxes

Employment related
taxes- Social taxes

Unemployment taxes
FUTA

Unemployment taxes
SUTA

Personal Property taxes


& intangible taxes

Value added taxes


(VAT)

Excise taxes
gasoline, airline, tires

Excise taxes
Cigarettes, alcohol, etc.

Entertainment, hotels,
rental cars, etc. taxes

Real property taxes

Transfer taxes
estate and gift taxes

Transfer taxes
Inheritance taxes

Transfer taxes; Court


Fiduciary Account fees

Transfer taxes

What are Other forms of taxes? State Lotteries, legalized gaming?


What about a national sales tax versus higher income tax?

#1-27

Class Activity
What is the political process for Federal taxes?
Class Activity: 10-15 minute discussion & present back to class
Lets discuss the Social/Economic/Political process and impact of
taxes on budgets and spending as well as overall economy
Divide into 3 Groups:
Ways and Means Committee ( House of Representatives)
Senate Finance Committee (Senate)
President, Staff, Office of Budget & Management, and Secretary & Deputy
Secretaries of the Treasury (Executive Branch)

Group activity: How do we solve the challenges of tax revenues, spending


and deficits without just kicking the can down the road? What are
principles of a good tax policy? What does your group think is possible?

#1-28

Class Activity
Group Questions:
What is your teams solution?
Eliminate expenditures? Increase taxes? Borrow more money? Is there
one solution? Was there consensus on your team?

What are Social-Economic-Political Consequences?


If increasing taxes; How would you evaluate your tax proposal? Was it
sufficient? Fair? Efficient? What behavior changes do you want or might
occur?
If cutting expenses; what discretionary programs?

Did we just kick the can down the road? It is tough task
given complexity

#1-29

Homework for next class


Homework:
Read Chapter 3 (finish reading chapters 1 & 2)
Please use online connects to do your homework
Problems for Discussions:
2-9, 2-13, & 2-15

Application Problems:
2-3, 2-7 & 2-8

Issue Recognition Problems:


2-5

1-30

Have a great day! See you Tuesday.

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