Pearson’s Federal Taxation 2020:
Individuals
Thirty-Third Edition
Chapter 1
An Introduction to
Taxation
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Learning Objectives
1.1 Discuss the history of taxation in the United States
1.2 Describe the three types of tax rate structures
1.3 Describe the various types of taxes
1.4 Discuss the criteria for a “good” tax structure, the objectives of the federal income tax
law, and the recent tax reform proposals
1.5 Describe the tax entities in the federal income tax system
1.6 Identify the various tax law sources and understand their implications for tax practice
1.7 Describe the legislative process for the enactment of the tax law
1.8 Describe the administrative procedures under the tax law
1.9 Describe the components of a tax practice
1.10 Understand the importance of computer applications in taxation
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History of US Taxation
• Sixteenth Amendment was passed in 1913 to make
federal taxation of individuals constitutional.
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History of US Taxation
• Sixteenth Amendment was passed in 1913 to make
federal taxation of individuals constitutional.
• Tax laws were codified into Internal Revenue Code
of 1939, 1954, and 1986.
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Revenue Sources
• Individual Income taxes – 48%
• Social Security – 35%
• Corporate taxes – 9%
• Other – 8%
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Types of Tax Rate Structures
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Types of Tax Rate Structures
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Determination of Taxable Income and
Tax Due
Total income
Minus: Exclusions
Gross Income
Minus: Deductions
Taxable Income
Times: Tax Rate
Income Tax Before Credits
Minus: Tax Credits
Total Tax Liability
Minus: Prepayments
Balance Due or Refunds
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Other Types of Taxes
• State and Local
• Estate
• Gift
• Property Taxes
• Federal Excise Tax
• Sales Taxes
• Employment Taxes
• Unemployment Tax
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Criteria for a Tax Structure
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Objectives of the Federal Income Tax
Law
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Entities in Federal Tax System
Taxpaying Entities Flow-through Entities
• Individuals • Sole Proprietorships
• C Corporations • Partnerships
• S Corporations
• LLCs or LLPs
• Trusts
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