This course is the first course in a five-course US Federal Tax Specialization. It covers and focuses on the U.S. federal tax system as it relates to individuals, employees, and sole proprietors. Key concepts covered include gross income and items that are statutorily included or excluded in it, personal and business expenses that qualify as tax deductions, and the differing tax treatments for employees versus self-employed taxpayers. Unlike many other introductory courses in tax and as part of this course’s comprehensive wrap-up, learners will be provided with practical and tangible experience reporting both income and expenses on the main individual tax return used in the US, Form 1040. If you have enjoyed this course, consider enrolling in our online graduate Accounting program. The University of Illinois at Urbana-Champaign, consistently ranked as one of the nation's top three accounting programs, now offers a master’s in accounting at a very affordable tuition rate and is completely online. The iMSA is a full Master of Accountancy program and students graduate with an MS that is highly recognized. Try an open course or two, then apply for admission into the credit-bearing version as you may be eligible to take credit-bearing courses during the application process. If you are missing any prerequisites for the full degree, you can complete Coursera courses to demonstrate readiness and strengthen your application for the iMSA. For more information on this exciting iMSA online program, refer to this link: https://www.coursera.org/degrees/imsa
Taxes: An Introduction
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Do curso por University of Illinois at Urbana-Champaign
Federal Taxation I: Individuals, Employees, and Sole Proprietors
63 classificações
University of Illinois at Urbana-Champaign
63 classificações
Curso 1 de 5 em Specialization U.S. Federal Taxation
Na lição
MODULE 1: AN INTRODUCTION TO TAXATION
In this module, you will be introduced to the different kinds of taxes faced by U.S. taxpayers and the U.S. federal income tax structure. The origin of tax law and its constitutionality is discussed along with a brief history of the different changes in rates that have occurred since the 16th amendment was passed. Finally, we will discover the three different sources of new tax laws and rules.
Conheça os instrutores
Petro Lisowsky, PhD, CPAAssociate Professor of Accountancy
College of Business: Department of Accountancy
Matthew HutchensLecturer of Accountancy
Department of Accountancy
Hello, and welcome to the Gies College of Business at the University of Illinois.
Welcome to Federal Taxation One,
the taxation of individuals,
employees, and sole proprietors.
In this course, we're going to learn about
the individual income taxation system of the United States.
So, let's start off with a basic question.
What is a tax?
According to the Internal Revenue Service,
the agency tasked with administering and enforcing the tax laws in the United States,
a tax is an enforced contribution exacted
pursuant to legislative authority in the exercise of the taxing power,
and imposed and collected for the purpose of raising
revenue to be used for a public or governmental purpose,
and not as a privilege granted or rendered.
So, what does this mean in plain English?
Well, first, a tax is a payment that is legally required.
In other words, it's not optional.
For example, not paying a tax can result in both civil and or criminal penalties.
Second, the payment is imposed and collected by the government.
In the United States,
federal taxes are administered, collected,
and enforced by the Internal Revenue Service or the IRS.
The IRS is an agency within the Department of Treasury which in turn,
is part of the executive branch of the United States government.
Being part of the executive branch,
means that the IRS operates under the direction of the President of the United States.
Third, the payment is not directly tied to any benefits received by the taxpayer.
Instead, taxes usually go into pools of
funds or provide communal benefits such as defense,
the general welfare, and infrastructure.
For example, your tax dollars may go to fund road improvements,
but they may or may not go into funding the roads that you actually use.
You can contrast this with a toll road,
where you pay a toll to use a particular road.
A toll is not a tax.
The next basic question we need to address is,
why do we pay taxes?
Well, simply put, taxes are used to fund governmental expenditures.
As one former Supreme Court justice put it,
taxes are the price we pay for civilized society.
In looking at how the United States government spends,
we see that the largest chunk of expenditures comes in
the form of Social Security and health care programs,
which makes up about one half of all federal expenditures.
Social security by itself,
takes up about a quarter of the federal budget.
This is a benefits program consisting of retirement disability and survivors benefits.
Medicare, which is health care coverage for Americans aged 65 and older,
or disabled, makes up 15 percent of all government expenditures.
Medicaid, which is health care coverage for
lower-income Americans along with other health care programs,
makes up about 12 percent of the budget.
Other entitlement programs,
mainly Social Safety net programs that provide
cash or in-kind assistance to struggling households,
takes up nine percent of the budget.
Defense spending is another big chunk of the budget,
making up roughly 15 percent of federal government expenditures.
Everything else the federal government does,
such as Veterans benefits,
Retirement benefits for federal employees,
Scientific and Medical research, Education, Infrastructure,
et cetera, takes up 16 percent of the federal budget.
Finally, because the United States has to borrow to cover the cost of its expenditures,
six percent of the federal budget goes to entrust payments.
Looking at this next chart,
we can see that individual income taxes make up
almost half of all tax revenues taken in by the federal government.
The next biggest source of federal tax revenue are payroll taxes.
These are taxes imposed in addition to
the income tax that are used to fund Social Security and Medicare.
After payroll taxes,
the third biggest revenue source is the corporate income tax, and then finally,
the smallest piece of the pie is income collected by
the government related to excise taxes,
custom taxes, estate and gift taxes,
and various other types of taxes.
But right now, these total tax revenues fall far
short of covering the total expenditures of the United States government.
In fact, for the government's 2019 fiscal year,
the Congressional Budget Office,
Congress's official scorekeeper on budget issues,
projects an estimated shortfall of about one trillion dollars.
That's one trillion dollars in a single year.
A gap that will have to be made up through federal borrowing.
Based on recent tax cuts and spending bills
passed by Congress and signed by the president,
it doesn't appear that yearly deficits or
the cumulative national debt are going down anytime soon.
So one question on the minds of economists and policymakers,
is whether these kinds of deficits are sustainable,
and what negative consequences might they bring in the future?
For example, will the United States need to decrease future spending,
and if so, what programs should have their budgets cut or reduced?
Thinking about this question from a tax perspective, we might ask,
"Will tax rates need to increase in
the future to address our budget deficits occurring now?"
Or, "Are there particular deductions or credits that may need to be
scaled back or eliminated to help increase federal revenues?"
These questions bring to mind a quote from
former the Canadian Prime Minister Mackenzie King,
who said that politician's promises a yesterday or the taxes of today.
But remember, making changes and tax laws doesn't occur in a vacuum,
because taxpayers will respond to changes.
So, if taxes must be raised in the future,
we also need to consider the implications of those changes.
How will taxpayers adjust their behavior?
How will the economy as a whole respond to a particular change in the tax code?
Aside from whether tax revenues are high enough,
another important question is whether the tax burden is fairly distributed.
For example, you may have heard someone say that our tax code is full of loopholes,
or maybe you've heard someone say that
one particular group isn't paying their fair share of taxes.
Ultimately, these are all very important questions that
taxpayers and tax policy makers must debate and decide.
But, regardless of what the future may hold,
right now is a very exciting time to study income taxation in the United States.
That's because on December 28th, 2017,
Congress passed, and on December 22nd,
2017, the president signed into law,
an act to provide for reconciliation pursuant to titles two and five of
the concurrent resolution on the budget for fiscal year 2018.
Since that name's a bit of a mouthful,
this legislation is more commonly known by its former short title,
the Tax Cuts and Jobs Act or TCJA.
The law wasn't allowed to keep this name due to some procedural rules in the Senate.
But, for simplicity for this course,
we're going to stick with the name Tax Cuts and Jobs Act or TCJA throughout the course.
So, why is this recent tax law such a big deal?
Well, this was a $1.5 trillion tax cut.
While that's pretty big,
it's not even the biggest tax cut in the last decade.
But, even though it's not the biggest tax cut,
the Tax Cuts and Jobs Act is a major revision
to how the tax structure in the United States works.
In other words, it changed the mechanics of
the tax code more than any other tax law change in the last 30 years.
But, most of these changes related to individual taxation are not permanent.
Instead, they are scheduled to sunset or expire at the end of 2025.
So, in 2026, the individual tax code absent further action by Congress and the president,
will essentially reset to what existed for tax year 2017.
You can contrast this with most of
the business tax changes made in that same law which were permanent.
So, throughout this course,
we'll see this new laws impact on the rules we will be learning about,
and while we'll focus on learning about
new permanent tax rules and rules in effect for 2018 through 2025,
we will occasionally touch on how things were treated in years prior to 2018,
and where applicable in years after 2025.
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