Marginal Tax rate - ANSWER Tax rate of last unit of base (next dollar
of income)
Average Tax rate - ANSWER Taxes paid/taxable income
Effective Tax rate - ANSWER Taxes paid/Economic income (taxable &
excludable income)
Estate tax - Gifts limits - ANSWER Single - $13,000 per donee/year
Married - $26,000 per donee/year
Gifts over the amount excluded are not subject to tax until the
cumulative amount of all gifts exceeds 5 million. Then the tax is 35%
The Unified Credit for the gift tax - ANSWER is the same as that for the
estate tax, $1,730,800 and is equivalent to an exemption of $5,000,000
FICA limits - ANSWER 6.2% SSN up to $106,800
1.45% Medicare no limit
Proportional tax - ANSWER FLAT RATE - stays the same for all values
Progressive tax - ANSWER Income goes up, tax rate increases
Regressive tax - ANSWER Income goes up, tax rate goes down
C Corporation - Double taxation - ANSWER Once one the corporate
level, & again on the shareholder lever. Double taxation can occur
because the corporation is not allowed to deduct any dividend payments
to its shareholders. Losses are carried back 2 years and forward 20
Sole proprietorship - ANSWER Unincorporated business owned by one
individual. Business activities are separated from activities of the owner,
separate records and reports are maintained. For tax purposes, a similar
approach applies except the sole prop. is not a separate entity.It DOES
, NOT file its own tax return. Instead the income and deductions from
operating a proprietorship are summarized and reported on Schedule C
of the owners' personal income tax return along with other tax items.
Distributions or withdrawals that an owner receives form a proprietorship
are not considered salary or other income since all of the proprietorship
income is included on the individuals' return regardless of whether it is
distributed. Therefore, a proprietor's draw is ignored.
Partnership - ANSWER - NOT subject to Federal income tax
- all items of partnership income, expenses, gain, loss, or credit pass
through the partnership to the partners and are given their tax effect.
- because partners pay taxes on their shares of the partnership income
regardless of whether it is distributed, distributions made by the
partnership to partners generally are NOT taxabale to the partners.
-losses flow through to partners and are offsett by income
- partners don't received regular W-2, but all guaranteed payments are
reported on schedule K-1 and are subject to self-e tax.
- partners don't quality for the favorable tax treatment of certain EE
fringe benefits
S Corporation - ANSWER - 100 or fewer shareholders
- income, loss, credit taxed as partnership, flow through and taxed on
the shareholder level
- salaries & wages ARE reported on W-2 and are subject to FICA and
income tax withholding
- EEs generally qualify for the favorable treatment of fringes, those
owning 2% or more of the corporation's stock, DO NOT
- Distributions from an S corporation, like those from a partnership,
normally are NON TAXABLE since they usually represent previously
taxed income.
Advantages:
- limited liability
- 1 level of taxation
LLC - ANSWER - Cross between partnership and C Corp.
of income)
Average Tax rate - ANSWER Taxes paid/taxable income
Effective Tax rate - ANSWER Taxes paid/Economic income (taxable &
excludable income)
Estate tax - Gifts limits - ANSWER Single - $13,000 per donee/year
Married - $26,000 per donee/year
Gifts over the amount excluded are not subject to tax until the
cumulative amount of all gifts exceeds 5 million. Then the tax is 35%
The Unified Credit for the gift tax - ANSWER is the same as that for the
estate tax, $1,730,800 and is equivalent to an exemption of $5,000,000
FICA limits - ANSWER 6.2% SSN up to $106,800
1.45% Medicare no limit
Proportional tax - ANSWER FLAT RATE - stays the same for all values
Progressive tax - ANSWER Income goes up, tax rate increases
Regressive tax - ANSWER Income goes up, tax rate goes down
C Corporation - Double taxation - ANSWER Once one the corporate
level, & again on the shareholder lever. Double taxation can occur
because the corporation is not allowed to deduct any dividend payments
to its shareholders. Losses are carried back 2 years and forward 20
Sole proprietorship - ANSWER Unincorporated business owned by one
individual. Business activities are separated from activities of the owner,
separate records and reports are maintained. For tax purposes, a similar
approach applies except the sole prop. is not a separate entity.It DOES
, NOT file its own tax return. Instead the income and deductions from
operating a proprietorship are summarized and reported on Schedule C
of the owners' personal income tax return along with other tax items.
Distributions or withdrawals that an owner receives form a proprietorship
are not considered salary or other income since all of the proprietorship
income is included on the individuals' return regardless of whether it is
distributed. Therefore, a proprietor's draw is ignored.
Partnership - ANSWER - NOT subject to Federal income tax
- all items of partnership income, expenses, gain, loss, or credit pass
through the partnership to the partners and are given their tax effect.
- because partners pay taxes on their shares of the partnership income
regardless of whether it is distributed, distributions made by the
partnership to partners generally are NOT taxabale to the partners.
-losses flow through to partners and are offsett by income
- partners don't received regular W-2, but all guaranteed payments are
reported on schedule K-1 and are subject to self-e tax.
- partners don't quality for the favorable tax treatment of certain EE
fringe benefits
S Corporation - ANSWER - 100 or fewer shareholders
- income, loss, credit taxed as partnership, flow through and taxed on
the shareholder level
- salaries & wages ARE reported on W-2 and are subject to FICA and
income tax withholding
- EEs generally qualify for the favorable treatment of fringes, those
owning 2% or more of the corporation's stock, DO NOT
- Distributions from an S corporation, like those from a partnership,
normally are NON TAXABLE since they usually represent previously
taxed income.
Advantages:
- limited liability
- 1 level of taxation
LLC - ANSWER - Cross between partnership and C Corp.
