United States Federal Taxation

United States Federal Taxation





Week 2 Discussion

Gross income is any amount of money that is earned by someone or a company before any tax or any deduction is taken from the earned fund. It can also be referred to like all the income from whatever sources obtained (Brownlee, 2016).  The items that can be included in the gross income are compensation for services, gains that are obtained from dealing with business and Rents among others. In most of the cases, inheritances are excluded from the income while on the other hand, any revenue obtained from the property after the transfer is taxable. The gifts received from a person are excluded from the income all the same. However, the gift in the business settings and in the case where the recipient renders services for the donation, then the amount will be taxable.

The scholarship incomes received for fees, books, tuition, and course needed supplies are exempted from the income while any amount applied for rooms or received as compensations are included in the income. Additionally, the taxpayers may remove from income the total amount obtained by the payment of the medical care or the premiums paid for the health insurance. The part of the social security benefits received by an individual may be included in the income. The maximum amount that can be added is 85% of the amount received (Brownlee, 2016).

Week 3 Discussion

The schedule C is a document from the sole proprietors that gives details of profit and loss in business. The relevant information for filing the form is the general income of the business, the expenses incurred and the cost of goods and services. This document is an essential to most of the small business in the globe, and it is used to determine the viability of the firm (Brownlee, 2016). The treatment of meals, travel and entertainment expenses by a business depend on its role in the enterprise. Therefore, during the calculation of income, the taxpayers may deduct a reasonable amount that is paid for food, travel and entertainment expenses if the amount or funds are incurred to earn an income from a business or property and in other circumstances from employment. The meals that are provided by the employer on the business premises during the working hours based on the benefit of the organization by the presence of the employee is excluded from the income.

On the other hand, the meals that are provided outside the premises and do not benefit the employer are added to the income of the employees and hence subject to tax. The same cases happen to the travel and entertainment cases within the operation of the business. If the employee is going for the benefit of the company, then the amount spent on the trip will not be included in the income but will be treated as an expense of the business. The same treatment is given to the entertainment services that are performed by the employee or employer.

Passive income according to the IRS is any amount of revenue that you can get without any material involvement. These are the rental properties, and the partnership returns that one gets. Unlike the earned income that is mainly subject to the self-employment tax that is just above 15.5%, the passive income is not subject to the tax.  The property is considered a passive activity and is subject to the IRS activity loss rules in the federal state. Therefore, when you incur a loss in the rental property as part of the passive income, the IRS considers that in the context of the primary income earning activity. The passive losses cannot reduce the revenue from the wages, but there is a possibility to defer the losses to future tax. The IRS allows a deduction of up to $25,000 for the passive property (Brownlee, 2016).

Week 4 Discussion

The itemized deductions are eligible expenses that the taxpayer can claim on the federal state and decrease the taxable income. The tax cut that is offered by itemized deductions depends so much on the taxpayer’s income tax rate according to the policy (Brownlee, 2016). For example taking two families which paid $10,000 as mortgage interest, one of the families with a federal tax rate of 15% should expect not more than $1500 federal tax cut while the family with 39% top rate should expect not more than $3900 federal tax cut. Therefore, the treatment is based on the tax rate and the amount that is paid as the mortgage. The examples include the health care expense deductions, charity deduction, and mortgage deductions.

The earned income tax credit is a tax credit that is refundable and available to the eligible workers with a relatively small income, and it has been one of the successful anti-poverty program cash (Brownlee, 2016).  Because it is refundable, the EITC recipient needs to have some credits to be eligible, and the credit is authorized under the 32 of the internal revenue code. Therefore, under the current law, the credit is calculated based on the income of the recipient, using the different formulas, the number of children to qualify for the tax filer forms and his or her marital status.

The alternative minimum tax is a tax system that operates in the same direction and parallel with the federal income tax system (Brownlee, 2016). Therefore, while others use the regular tax system the others in the society may use the alternative minimum tax system. The system has its own set of rules that the person must operate within, and his role is to target some of the wealthy people in the society. Unlike the regular income tax, the AMT is not indexed to inflation and therefore the rates of inflation affect its course. Therefore, the inflation makes one pay more and more to the AMT, and this might cause it to extend to the middle-income earners in the society.

Week 5 Discussion

Depreciation is an income tax deduction that gives the taxpayer a chance to recover the cost of some properties (most tangible properties like building, vehicles, machinery, and furniture except land). For depreciation to be allowed the following requirement must be met; the tax payer must own the property, the property must be in use for income generation activities and the property’s use for one year should be determinable (Brownlee, 2016). The property ceases to depreciate once the owner or the taxpayer has fully recovered the full cost of the product or when he or she retires the property from the services.

The tax treatment of goodwill is currently managed by the IRS and states that the intangible assets that are obtained as part of the acquisition could not be amortized for tax purposes. On the other hand, the intangible such as newspaper subscriptions and the person can state that it has significant use to the life of the individual was subject to be amortized for tax purposes (Brownlee, 2016). According to the IRS, the financial account treatment of the goodwill and other intangible assets does not affect the tax treatment of the property listed.

The capital gains and losses happen perhaps when you sell capital assets like the bonds, stocks, and options. The treatment of the capital or losses depends on the time you take before selling the product. The 15% maximum capital gains tax rate implies to sales of assets held for more than a year (0% for those in the 15% or lower tax bracket for 2009 through 2012). The 28% rate applies to the depreciation recapture for a particular property.

Week 6 Discussion

The tax withholding occurs when an employer decides to stay with the income tax from the employees pay. Estimated payment takes place when one is required to file tax returns for the withheld amount and allowable credits, then the amount paid through the speculation is the tax. The payroll taxes are the ones that on employees or employers and are usually calculated as the percentage of the salary earned by the staff (Brownlee, 2016).  The corporate tax rates are the charges that are imposed on the corporates businesses in the society. The treatment for capital gains and losses at the corporate level is done based on the time frame long-term capital gains of individuals are taxed at favorable rates, and there is no favorable treatment, and the standard rates apply. The S corporation is a pass through tax entity that is formed by the state government.

Week 7 Discussion

IRS is a review of an individual or organizations account, and more so the financial information to make sure that the information is reported accurately according to the tax law and to verify is correct. The tax penalty is the punishment that is entitled to someone who has defaulted in paying the taxes while the statute of limitation represent how long you should be looking at your shoulder after willingly lied on paying the tax. The taxpayers’ bills of rights represent the rights that each person has while also dealing with the IRS in paying the taxes (Brownlee, 2016).


Brownlee, W. E. (2016). Federal Taxation in America. Cambridge University Press.

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