LECTURE NOTES
Unit 11 Chapter 1
AN OVERVIEW OF
FEDERAL TAXATION
LECTURE NOTES
I. Introduction.
A. What is the significance of taxation?
1. THIS IS THE MOST IMPORTANT COURSE YOU WILL EVER TAKE (from a financial viewpoint, of course)! A rather strong statement, I know, but no other single subject will have as much impact on your wealth as taxation. Although it may seem somewhat of an overstatement, in some form or another, the tax collector is involved in virtually every transaction in which an individual engages. The impact of taxes is not limited to business dealings (where some have characterized the tax collector as a silent partner in every business deal). Tax collectors can be seen in all walks of life. They may play a role in birth (e.g., timing the birth of a child this year instead of next to obtain the exemption—I know a guy who went so far as to induce labor on December 30), in death (e.g., estate and inheritance taxes), marriage and divorce (e.g., the marriage tax penalty has caused people to simply live together rather than marry). Political cartoonists have often pictured the IRS as always having its hands in the taxpayer’s pocket. Regardless of how it is said, the truth remains that taxes are pervasive, impacting, and often controlling, many personal and business decisions. Most importantly, the effect of decisions involving taxes usually has a direct impact on the taxpayer’s pocketbook.
2. Thus, there is more than a grain of truth in Ben Franklin’s oft-quoted proverb, “there are two things certain in life: death and taxes.” But death is frequently painless and only happens once! But taxes are not something, like the weather, that one cannot necessarily control. (Remember they threw the tea in Boston Harbor to protest the tea tax. If we had not won the war they would be labeled tax evaders not patriots). A basic understanding of taxes can help control their impact. Tax avoidance is perfectly legal and moral, while tax evasion is a
AN OVERVIEW OF
FEDERAL TAXATION
LECTURE NOTES
I. Introduction.
A. What is the significance of taxation?
1. THIS IS THE MOST IMPORTANT COURSE YOU WILL EVER TAKE (from a financial viewpoint, of course)! A rather strong statement, I know, but no other single subject will have as much impact on your wealth as taxation. Although it may seem somewhat of an overstatement, in some form or another, the tax collector is involved in virtually every transaction in which an individual engages. The impact of taxes is not limited to business dealings (where some have characterized the tax collector as a silent partner in every business deal). Tax collectors can be seen in all walks of life. They may play a role in birth (e.g., timing the birth of a child this year instead of next to obtain the exemption—I know a guy who went so far as to induce labor on December 30), in death (e.g., estate and inheritance taxes), marriage and divorce (e.g., the marriage tax penalty has caused people to simply live together rather than marry). Political cartoonists have often pictured the IRS as always having its hands in the taxpayer’s pocket. Regardless of how it is said, the truth remains that taxes are pervasive, impacting, and often controlling, many personal and business decisions. Most importantly, the effect of decisions involving taxes usually has a direct impact on the taxpayer’s pocketbook.
2. Thus, there is more than a grain of truth in Ben Franklin’s oft-quoted proverb, “there are two things certain in life: death and taxes.” But death is frequently painless and only happens once! But taxes are not something, like the weather, that one cannot necessarily control. (Remember they threw the tea in Boston Harbor to protest the tea tax. If we had not won the war they would be labeled tax evaders not patriots). A basic understanding of taxes can help control their impact. Tax avoidance is perfectly legal and moral, while tax evasion is a