The English colonists in the Massachusetts Bay Colony enacted the first income tax in 1634, but the federal government did not adapt this form of taxation until 1861. Eleven states and the Federal Union raised income tax to finance the civil war. After the civil war, there was no need for income tax and the federal government to repeal the tax. All operations could be financed by customs duties.
In 1894, a new federal income tax on individuals was enacted. The federal corporate income tax was enacted by the Congress in 1909. The U.S. Supreme Court had approved all these laws. The German Einkommensteuergesetz was enacted in 1934, the Körperschaftssteuergesetz was enacted in 1920, and the Gewerbesteuergesetz in 1936.
With the Revenue Act from 1913, the first form 1040 was due on March 1, 1914. The structure was very similar. They already had deductions and personal exemptions. The rates ranged from 2 percent to 6 percent. The 6 percent rate applied for income in excess of $ 500,000. Nowadays the highest rate is 35 percent and applies on taxable income above $357,700.
Table of Contents
1 Introduction and Basis tax model
1.1 History of U.S. Taxation
1.1.1 Early Periods
1.1.2 Revenue Acts
1.1.3 Federal Budget receipts -2008
1.1.4 Criteria for Evaluating a Tax Structure
1.2 The Tax Structure
1.3 Major Types of Taxes
1.3.1 Property Taxes
1.3.2 General Sales Taxes
1.4 The Federal Tax Law
2 The Tax Law and Sources
2.1 Statutory Sources of the Tax Law
2.2 Administrative Sources of the Tax Law
2.3 Judicial Sources in the Tax Law
2.3.1 Trail Courts
2.3.2 Appellate Courts
3 Individual Income Tax
3.1 Tax Determination with the Tax Formula
3.1.1 Tax Formula
3.1.2 Components of the Tax Formula
3.1.3 Personal Exemptions
3.1.4 Dependency Exemptions
3.2 Gross Income
3.2.1 Definition
3.2.2 Year of Inclusion
3.2.3 Income Sources
3.3 Exclusions from the Income
3.3.1 Items specifically excluded from Gross Income
3.3.2 Gifts and Inheritances
3.3.3 Life Insurance Proceeds
3.3.4 Foreign Earned Income
3.3.5 Interests on Certain State and Local Government Obligations
3.4 Deductions and Losses
3.4.1 Classification of Deductible Expenses
3.4.2 Deductions for Adjusted Gross Income
3.4.3 Business and Hobby Losses
3.5 Depreciation, Cost Recovery, Amortization, and Depletion
3.5.1 Concepts Relating to Depreciation - Nature of Property
3.5.2 Modified Accelerated Cost Recovery System (MACRS)
3.5.3 Amortization
3.6 Alternative Minimum Tax
3.6.1 Individual Alternative Minimum Taxable Income (AMTI)
3.6.2 AMT Formula for Alternative Minimum Taxable Income (AMTI)
3.6.3 AMT Adjustment
3.6.4 Tax Preferences
3.6.5 Other Components
3.7 Tax Credits
3.7.1 Refundable and Nonrefundable Credits
3.7.2 General Business Credit
3.7.3 Other Tax Credits
3.8 Property Transactions
3.8.1 Determination of Gain or Loss
4 Corporations and Partnerships
4.1 Income Tax Considerations
4.1.1 Individuals and Corporations Compared
4.1.2 Deductions Available to Corporations
4.1.3 Determination of Corporate Tax Liability
4.2 Operating the Corporation
4.2.1 Dividend Distributions
4.3 Liquidating the Corporation
4.3.1 General Rule of § 331
4.3.2 Exception to the General Rule
4.4 Partnerships
4.4.1 Nature of Partnership Taxation
4.4.2 Partnership Formation
4.4.3 Partnership Operation
5 Non Federal Taxes
5.1 State Taxes in Wisconsin
5.1.1 Income Tax
6 Summary
Objectives and Core Topics
The primary objective of this work is to provide a structured overview of the individual and corporate tax system within the United States of America, detailing the legal foundations, tax formulas, and administrative procedures. It aims to clarify how tax liabilities are determined for both individuals and business entities.
- Historical development and fundamental structure of the U.S. tax system.
- Legal sources of tax law including statutory, administrative, and judicial components.
- Mechanisms for individual income tax determination, including deductions and exemptions.
- Specific considerations for corporate taxation, partnership structures, and liquidations.
- Overview of Alternative Minimum Tax (AMT) and various tax credit applications.
Excerpt from the Book
3.8.1 Determination of Gain or Loss
Realized gain and loss is the difference between the amount realized from the sale or other dispositions of property and the property's adjusted basis on the date of disposition. If the amount exceeds the property's adjusted basis, the result is a realized gain. Conversely, if the property is adjusted basis exceeds the amount realized; the result is a realized loss.
3.8.1.1 Amount Realized
The amount realized from a sale is calculated as the following: total sum receive plus the fair market value (FMV) of property received and mortgages/loans transferred to buyer. For example, A sells a property for $50,000 in cash and with a mortgage on it of $20,000 to B. A has to recognize the $50,000 cash received and the $ 20,000 for the mortgage. Therefore, A has to recognize $70,000 in total.
Summary of Chapters
1 Introduction and Basis tax model: This chapter covers the historical development of U.S. taxation and defines the core criteria for a functional tax structure.
2 The Tax Law and Sources: It explains the three pillars of U.S. tax law: statutory provisions, administrative pronouncements, and judicial decisions.
3 Individual Income Tax: This comprehensive section details the tax formula, gross income definitions, deductions, and specialized mechanisms like AMT and tax credits.
4 Corporations and Partnerships: This chapter compares corporate and individual taxation, detailing how business income, dividends, and partnership structures are handled.
5 Non Federal Taxes: It briefly addresses state-level taxation, using Wisconsin as a specific example of regional income tax application.
6 Summary: This chapter concludes the work by reflecting on the complexity of the U.S. system and mentioning the issue of the "tax gap."
Keywords
United States, Taxation, Individual Income Tax, Corporate Tax, Internal Revenue Code, Tax Formula, Adjusted Gross Income, Deductions, Alternative Minimum Tax, Tax Credits, Property Transactions, Partnership Taxation, Tax Liability, Revenue Acts, Fiscal Policy.
Frequently Asked Questions
What is the primary focus of this document?
This work provides an analytical overview of the U.S. tax system, covering both individual and corporate tax structures, legal foundations, and calculation methodologies.
What are the core thematic areas discussed?
The core themes include the history of U.S. taxation, the sources of tax law, individual income tax determination (including the tax formula), corporate tax considerations, and property transactions.
What is the ultimate goal of this publication?
The goal is to explain how tax liabilities are derived for individuals and corporations, ensuring a clear understanding of the rules governing income, deductions, and credits.
Which scientific or analytical methods are applied?
The document uses a descriptive and analytical approach to break down the U.S. tax code, referencing official Internal Revenue Code sections and court cases to support the explanation of tax laws.
What is covered in the main section of the book?
The main body focuses on the technical aspects of tax determination: the tax formula for individuals, gross income inclusions and exclusions, depreciation methods, the Alternative Minimum Tax (AMT), and corporate tax liability.
Which keywords characterize this work?
The primary keywords are United States, Taxation, Individual Income Tax, Corporate Tax, Internal Revenue Code, Tax Formula, Deductions, and Alternative Minimum Tax.
How does the U.S. tax system treat partnership taxation?
Partnerships are generally treated as "conduit" entities, meaning they are not subject to income tax at the entity level; instead, the tax attributes flow through to the individual partners.
What is the difference between refundable and nonrefundable tax credits?
The major difference is that refundable credits can provide a taxpayer with a cash refund if the credit amount exceeds their total tax liability, whereas nonrefundable credits are limited to the amount of tax owed.
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- Marcel Scherf (Autor:in), 2009, The Tax System in the United States. Indiviual and Corporate Income Tax and State Taxes in Wisconsin, München, GRIN Verlag, https://www.grin.com/document/126052
