Colonial Times... 2 The Post Revolutionary Era... 3 The Civil War... 3 The 16th Amendment... 3 World War I and the 1920s... 5 The Social Security

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1 Colonial Times... 2 The Post Revolutionary Era... 3 The Civil War... 3 The 16th Amendment... 3 World War I and the 1920s... 5 The Social Security Tax... 5 World War II... 5 Developments after World War II... 6 The Reagan Tax Cut... 6 The Tax Reform Act of EGTRRA 2001 (The Bush Tax Cut)... 7 The Patient Protection and Affordable Care Act (PPACA) of TRA The American Taxpayer Relief Act of 2012 (ATRA 2012)... 8 The Tax Increase Prevention Act of Protecting Americans from Tax Hikes Act of Consolidated Appropriations Act of The Tax Cuts and Jobs Act of The Bipartisan Budget Act of

2 Overview of Federal Income Taxation The Three Tax Systems Basic Rules of Income Taxation All Accretions to Wealth Constitute Income For Every Deduction, There Must be an Inclusion Triads of Income Taxation...16 Summary Statutory Sources of Tax Law How Tax Laws are Passed Administrative Sources of Tax Law Judicial Sources of Tax Law Role of the IRS Statute of Limitations Interest and Penalties for Noncompliance Penalties for Underpayment of Estimated Tax Preparer Penalties Audits Dispute Resolution Court System... 46

3 Introduction Income Exclusions Gross Income Deductions Adjusted Gross Income (AGI) Taxable Income Tax on Taxable Income Credit for Estimated Tax Payments Other Tax Credits Tax Accounting Periods Tax Accounting Methods Filing Status Personal and Dependency Exemptions Calculation of the Standard Deduction for a Dependent Kiddie Tax Filing the Tax Return Taxpayers Required to File a Return Credit for Taxes Withheld Tax Year and Accounting Method Gains Normally Taxed When Realized

4 Investment Income Income from Personal Activities Employment Income Special Issues for Persons Living in Community Property States Investment Items Included in Gross Income Investment Items Excluded from Gross Income Personal Activity Items Included in Gross Income Alimony Paid Personal Activity Items Excluded from Gross Income Special Rules for Compensation for Injuries and Sickness Foreign Earned Income Introduction to Fringe Benefits Taxation of Fringe Benefits Nondiscrimination of Fringe Benefits Individuals Who May Enjoy Benefits Health Insurance Health Care Law Archer Medical Savings Accounts Health Savings Accounts Qualified Medical Expenses Life Insurance Disability Insurance Cafeteria Plans Flexible Spending Accounts (FSAs) Long-Term Care

5 Meals and Lodging No-Additional-Cost Services Qualified Employee Discounts Working Condition Fringe Benefits De Minimis Fringe Benefits Qualified Transportation Fringe Benefits Qualified Moving Expense Reimbursements Qualified Retirement Planning Services Athletic Facilities Educational Assistance Programs Dependent Care Assistance Tuition Reductions Granted to Employees of Educational Institutions Adoption Assistance Programs Employee Achievement Awards Combat Pay and Other Benefits of Military Personnel Rental Value of Parsonage Frequent Flyer Miles Employee Deferrals Employer Contributions Retirement Plan Earnings Retirement Plan Distributions Income from Roth 401(k) and 403(b) Accounts Employee Stock Options: ISOs & NQSOs Unemployment Compensation Workers Compensation Social Security Modified Adjusted Gross Income (MAGI) for Social Security Income Inclusion

6 Deductions for AGI (Above the Line) Itemized Deductions (Below the Line) Which Type of Deduction is Better Above or Below-the-Line Deductions? Trade or Business Expenses Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs) Individual Retirement Accounts Moving Expenses Penalty on Early Withdrawal of Savings Educator Expenses Student Loan Interest Alimony Paid Types of Businesses and General Deduction Rules Common Deductions for Employers and the Self-Employed For Employees For Business Owners For Investors Timing of Deduction Itemized Deductible Medical Expenses Overview Capital Expenses

7 Nursing Homes and Special Schools Travel and Lodging Expenses Nondeductible Medical Expenses Above-the-Line Medical Expenses Timing of Deduction Nondeductible Fines and Fees Qualified Residence Interest Deduction Investment Interest Deduction Qualified Charitable Organizations Additional Requirements for Deduction Gifts that Qualify for the Deduction Itemized Deduction Limitations Partial Interest Gifts Casualty Loss Limitations Business Casualty Losses Deductions Not Subject to the Two Percent Floor (Tier I) Deductions Subject to the Two Percent Floor (Tier II) Public Policy Limitations Political Contributions Excessive Compensation Hobby Losses Rental of Vacation Homes Expenditures

8 Bad Debts Worthless Securities Section 1244 Stock Losses of Individuals Research and Experimental Expenditures Net Operating Losses Loss Limitation for Individuals Depreciation Excess Contributions Penalty Early Distribution Penalty Late Distribution Penalty Section 1031 Exchanges Resulting in a Loss are Not Immediately Deductible Wash Sales Related Party Transactions Gifts Below Fair Market Value Sale of Personal Assets for Loss Nonrefundable Tax Credits Refundable Tax Credits Tax Credits vs. Tax Deductions Tax Policy Issues Tax Credit Requirements Nonbusiness and Business Tax Credits Foreign Tax Credit Credit for Child and Dependent Care Expenses Credit for the Elderly or Disabled Education Credits (American Opportunity Tax and Lifetime Learning Credits) Retirement Savings Contributions Credit (Saver s Credit)

9 Child Tax Credit (IRC Section 24) Family Tax Credit Residential Energy Property and Residential Energy Efficient Property Credits Qualified Adoption Expenses Credit Credits for Taxes Paid Earned Income Credit Investment Credit Work Opportunity Credit Credit for Increasing Research Activities Low-Income Housing Credit Disabled Access Credit Small Employer Pension Plan Startup Costs Credit Employer-Provided Child Care Credit Tax Credits from the 2010 Health Care Legislation Calculating Gain or Loss Purpose of Basis Uses of Basis Cost Basis Adjustments to Basis Basis of Inherited Property Basis of Gifted Property Basis of Property Transferred Between Spouses or Incident to Divorce Related Party Transactions (Sales, Gifts, and Basis-IRC Section 267) Basis of Jointly Held Property Introduction

10 Purpose Methods of Depreciation Bonus Depreciation (Additional First Year Depreciation) Amortization of Intangible Assets Depletion of Natural Resources Special Depreciation Issues Capital Assets Ordinary Income Assets Section 1231 Assets Sale or Exchange Requirements Calculation of Gain or Loss Recognition Rules Holding Periods Capital Gains Tax Rates Capital Gains and the AMT Small Business Stock (Section 1202)

11 Benefits of Section The Catch - Depreciation Recapture Gifts Nontaxable Exchanges Transfers at Death Charitable Contributions Installment Sales The 5-Year Lookback Rule Assets Subject to Like-Kind Exchange Treatment Requirements for Like-Kind Exchange Treatment Related-Party Transactions Tax Consequences of Like-Kind Exchanges

12 Background to the Passive Activity Loss Rules Net Investment Income (2013 and Beyond) Three Types of Income Passive Activities Material Participation Grouping of Passive Activities The Basis Limitation At-Risk Rules Passive Activity Loss Rules Rental Activities Real Estate Exceptions

13 Personal and Dependency Exemptions and the Standard Deduction Itemized Deduction Changes Investment-Related Changes Business-Related Changes Miscellaneous Adjustments Ease and Cost of Formation Complexity of Management and Governance Transferability and Dissolution Liability Protection for Owners Personal Assets Reporting Requirements and Taxation Formation Interest, Disposal of Interest, and Dissolution Capital Liability Management/Operations Income Taxation and Payroll (Social Security) Taxes Formation Interest, Disposal of Interest, and Dissolution Capital Liability Management/Operations Income Taxation and Payroll (Social Security) Taxation Formation Interest, Disposal of Interest, and Dissolution

14 Capital Liability Management/Operations Income Taxation and Payroll (Social Security) Taxes Formation Interest, Disposal of Interest, and Dissolution Capital Liability Management/Operations Income Taxation and Payroll (Social Security) Taxes Formation Interest, Disposal of Interest, and Dissolution Capital Liability Taxation Formation Interest, Disposal of Interest, and Dissolution Capital Liability Management/Operations Income Taxation and Payroll (Social Security) Taxes Formation Interest, Disposal of Interest, and Dissolution Capital Liability Management/Operations Income Taxation and Payroll (Social Security) Taxes Interest, Disposal of Interest, and Dissolution Capital Liability Management/Operations Income Taxation and Payroll (Social Security) Taxes Comparison of S Corporations and LLCs Protecting Minority Shareholders/Members Elements of Shareholder/Partnership Agreements Issues Regarding Additional Capital Required

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