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Income Tax

Transcript: Starter 8-1 Write a paragraph discussing what life would be like if city, state and federal governments all stopped charging taxes. Sales Tax Gas Vice taxes (Alcohol Tobacco) Fees for services (hunting license, library card, toll roads, etc.) Home Car Income Tax Consumptive tax Property Taxes Corporate Tax Capital Gains Tax Payroll Taxes Inheritance or Estate Taxes FICA: Social Security Medicaid Earn Money Gross Income Withheld Income Earned Income Unearned Income Taxable Income I.R.S Exemptions are about who is dependent on that income. Deductions are about spending money in non-taxable ways. 33% Comes from your W-2 Changes Tax Rate Reckoning NET PAY (Take Home Pay) Employer reports all taxes witheld to you and the I.R.S. end of the year Example: Head of Household earning $50,000 More dependents reduces taxable inome. all year = Higher Taxable income = Higher Tax Rate If all goes well... Example: Single person earning $300,000 TAXES OWED Taxes Withheld Ability to Pay = "Fairness" all stuff you can spend your money on that reduces your taxable income. Deductions are about how you spent your income. Income Tax Withheld 25% Business or investment losses reduce gross income REFUND or ADDITIONAL PAYMENT A concept of tax fairness that people with different amounts of wealth or different amounts of income should pay tax at different rates. Wealth includes assets and property, such as houses, cars, stocks, bonds, and savings accounts. Income includes wages, interest, and dividends. Lower Taxable Income = Lower Tax Rate Deductions reduce your taxable income. more and more details. Tax Credits other income sources Kinds of Taxes If not... All types of income listed here You are not taxed for the parts of your income that you spend in these ways. Calculate taxes ALL income All exemptions All deductions Tax percentage based on ablility to pay Current tax law

Income Tax

Transcript: 164(d)(1) State and Local Sales Tax What Does it all Mean? Nobody Knows What it Means, but it’s Provocative. It Gets the People Goin’. Adorable married couple Cory and Jordan Maglements have a nice little home in Tech Terrace, but they decide they need more room for activities, such as scrapbooking and interpretive dance. So, after a few days of searching, they find the perfect house and buy it on May 15, 2011. On May 31, they are able to sell their old home to Justin. The tax for 2011 on the old house was $1,657, and $2,168 on the new house. How much of this can the Maglements deduct from their 2011 taxes? Answer Example HYPO 4 State and Local Personal Property Taxes Now Usually I Don’t Do This, But Uh… State, Local, and Foreign Let’s Get Weird (6) Qualified motor vehicle taxes (A) In general For purposes of this section, the term “qualified motor vehicle taxes” means any State or local sales or excise tax imposed on the purchase of a qualified motor vehicle. Sales Tax, continued... Usually, as in the previous example, the purchase agreement includes language indicating that real estate taxes will be split between the buyer and seller based on the date of the sale. But sometimes, the buyer will agree to pay the real estate taxes for the full year regardless of the date of purchase. The buyer might even agree to pay delinquent real estate taxes from prior years as part of the purchase agreement. Any state, local, or foreign taxes on real property levied for the general public welfare. - I.R.S. Publication 17 (2011) I.R.C. 164(a) and (d)(1) I.R.C. 1001(b) Reg. § 1.1001-1(b) Reg. § 1.1001-1(b) (b) Amount realized.--The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received. In determining the amount realized-- (1) there shall not be taken into account any amount received as reimbursement for real property taxes which are treated under section 164(d) as imposed on the purchaser, and (2) there shall be taken into account amounts representing real property taxes which are treated under section 164(d) as imposed on the taxpayer if such taxes are to be paid by the purchaser. Sales Tax Deduction v. Income Tax Deduction HYPO 4 (d) Apportionment of taxes on real property between seller and purchaser (1) General rule For purposes of subsection (a), if real property is sold during any real property tax year, then— (A) so much of the real property tax as is properly allocable to that part of such year which ends on the day before the date of the sale shall be treated as a tax imposed on the seller, and (B) so much of such tax as is properly allocable to that part of such year which begins on the date of the sale shall be treated as a tax imposed on the purchaser. Deductible Taxes State and local income taxes withheld from a taxpayer's wages during the year are deductible in the year they were withheld. Foreign income taxes usually qualify as an itemized deduction or as a tax credit in the year they were paid. Federal income taxes are not deductible. (Reg. § 1.164-2(a)). Example Answer Any state, local, or foreign taxes on real property levied for the general public welfare. - I.R.S. Publication 17 (2011) I.R.C. 164(a) and (d)(1) I.R.C. 1001(b) Reg. § 1.1001-1(b) Well What Is a Motor Vehicle? Usually, as in the previous example, the purchase agreement includes language indicating that real estate taxes will be split between the buyer and seller based on the date of the sale. But sometimes, the buyer will agree to pay the real estate taxes for the full year regardless of the date of purchase. The buyer might even agree to pay delinquent real estate taxes from prior years as part of the purchase agreement. To claim the sales tax deduction, you can either add up all sales tax paid for the year (if you have the receipts) or you can claim a standard amount based on your state and income level. Deductible real estate taxes are generally any state, local, or foreign taxes on real property. They must be charged uniformly against all property in the jurisdiction and must be based on the assessed value. Many states and counties also impose local benefit taxes for improvements to property, such as assessments for streets, sidewalks, and sewer lines. These taxes cannot be deducted. However, you can increase the cost basis of your property by the amount of the assessment. Deductible Real Estate Taxes Definitions --§ 164(b)(1) : The term "personal property tax" means an ad valorem tax which is imposed on an annual basis in respect of personal property. Taxes that are deductible are governed primarily by Section 164 What Does it all Mean? Nobody Knows What it Means, but it’s Provocative. It Gets the People Goin’. Let’s Get Weird Under §1001(b), if the buyer pays property taxes allocable to the seller, the seller’s property taxes paid by the buyer increase the seller’s amount realized and the buyer’s basis in the

Income Tax

Transcript: Graphs and Charts by: Bysche P. Ramas Income tax is a tax on a person's income, profits and the like, realized in one taxable year. Definition of Taxable income Nature and purpose of income tax Cash and/or property dividends received from a corporation Income (for tax purposes) means all wealth which flows into the taxpayer other than as a mere return on capital. So not all receipts of a person are income. The amount of income that is used to calculate an individual's or a company's income tax due. Taxable income is generally described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments that are allowable in that tax year. 6%, 8%, and 10%, effective 1998, 1999, and 2000 respectively It is generally regarded as a privilege tax and not a tax on property. It is a tax on the privilege to earn an income. Its purpose is to raise revenue. 6% based on the gross selling price or current fair market value, whichever is higher 5% on the amount not exceeding P100,000 and 10% on any amount in excess of P100,000, so if the net capital gains is P120,000, the final tax is P7,000. Royalties A payment to an owner for the use of property, especially patents, copyrighted works, franchises or natural resources. A royalty payment is made to the legal owner of a property, patent, copyrighted work or franchise by those who wish to make use of it for the purposes of generating revenue or other such desirable activities. In most cases, royalties are designed to compensate the owner for the asset's use, and are legally binding. What is gross income? Definition of Income Net capital gains from sale of shares of stock not traded through the stock exchange What is income tax? Incomes subject to final income tax It is all income but not including exempt income and income subject to final tax. Rates of taxable income of individuals Capital gains from sale real property

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