What you need to know to pass ATO1
Competency 302.2.1: Current Tax System. The student understands the nature, purpose, and scope of the current U.S. tax system.
Differentiate between U.S. federal income tax system and other tax models.
The United States of America is a federal republic with autonomous state and local governments. Taxes are imposed in the United States at each of these levels. These include taxes on income, payroll, property, sales, imports, estates and gifts, as well as various fees. Taxes are imposed on net income of individuals and corporations by the federal, most state, and some local governments. Citizens and residents are taxed on worldwide income and allowed a credit for foreign taxes. Income subject to tax is determined under tax rules, not accounting principles, and includes almost all income from whatever source. Most business expenses reduce taxable income, though limits apply to a few expenses.
Recognize how taxes influence decision making by individuals.
Taxes can influence how much people do or do not spend. It can determine if people invest, build or buy a home and several other decisions.
Identify the professional, ethical, and legal responsibilities of a tax preparer.
The Standards of Professional Conduct for The National Association of Tax Professionals is a list of 11 standards based on one of three different responsibilities. The first responsibility is to protect and advise the client. The second is to the tax professional, who has a responsibility to conduct himself and his practice in such an ethical way that he will not jeopardize his reputation or self-respect. The third is to the government. While his fiduciary responsibility is to the client, the tax professional cannot forget that he may be called to explain and represent decisions made on the return before the IRS. As such, ethics play a vital role in the balance between representing the taxpayer, yet satisfying the legal requirements of... [continues]
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