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Chapter 8 to 11 (These questions are from these chapters)
Need Answers for below questions each question worth 5 points so answer accordingly key points.
Q1 Self employed vs employee
Q2 Tax credits vs tax deductions
Q3 Refundable vs nonrefundable credits
Q4 Lifetime learning credit vs American opportunity credit
Q5 Treatment of goodwill
Q6 Determination of realized and recognized gain/loss
Q7 Categories of assets (ordinary, capital, Sec 1231)
Answered Same Day Apr 15, 2020

Solution

Pulkit answered on Apr 16 2020
148 Votes
Answer 1
Self-Employment Taxes Vs. Employee
The taxes paid by the self-employed business owners against social security and Medicare to the administration of social security are the self-employment taxes. The taxes are also called SECA taxes. Although there is a threshold limit for the social security taxes being paid by the self-employed persons i.e., persons whose earnings exceed this threshold limit are not required to pay these social security taxes, whereas there is no threshold limit as such for Medicare taxes to be paid by the self-employed person. The tax rate applicable for self-employment taxes is 15.30% based on the net earnings of the business. This is applicable for Social Security and Medicare taxes.
The employment taxes on the other hand include FICA taxes (i.e., Social Security and Medicare taxes). This tax is shared by the employer and the employee. Each pays 7.65% which totals up to 15.3%. Although there is a threshold limit for the social security taxes being paid i.e., there is no need for social security taxes to be paid for those employees whose earnings exceed this threshold limit, whereas there is no threshold limit as such for Medicare taxes to be paid.
There is another tax that is required to be paid by the employer to provide unemployment benefits to the employees. This tax is called Federal Unemployment taxes i.e., FUTA tax. This requirement is no there in case of self-employed individuals. Neither they are required to pay any FUTA tax nor can they collect any unemployment benefits.
Further, income tax applies to both the cases similarly i.e., to say that every individual is required to pay income tax on all the earnings from each source. Thus, there is no major difference in the tax scenarios in case of employed and self-employed person except that FUTA taxes.
Answer 2
Tax credits vs. tax deductions
Both tax credits and deductions ultimately focus on reducing the tax liability of a tax payer. But the mechanics under which the benefit is allowed by both of them is quite different.
The most-simple case in which the benefit is passed on to a taxpayer is of tax credit. A tax credit allows dollar by dollar reduction in taxes to a taxpayer. For example, a $1000 tax credit would allow the benefit of $1000 tax reduction to the taxpayer. However the liability of taxes can be reduced maximum to zero.
Tax credits are of two kinds i.e., refundable and non-refundable. The majority of taxes are non-refundable i.e., they cannot be used to claim a refund by the taxpayer, whereas some of the tax credits are refundable as well. These refundable tax credits can be used to claim a refund of the excess taxes paid.
Unlike tax credits tax deductions do not directly reduce the tax liability of a taxpayer in terms of absolute dollar amount. Rather they reduce the income on which the taxpayer is liable to pay tax. For example a $1000 deduction would be multiplied by the tax marginal tax rate of the taxpayer to calculate by how much will his tax liability get reduced. So in other they the depth of benefit obtained by a tax deduction is lower than the benefits offered by a tax credit.
The tax deductions are of two types: standard deduction and itemized deductions. The taxpayer is allowed to choose any one from them. Generally speaking, a tax payer would itemize his deductions only in case when such itemized deductions exceed the value of standard deduction available to that taxpayer. Although there is no legal binding as such but this is a concept of prudence that a taxpayer might consider while estimating his tax liabilities to be settled by him.
Answer 3
Refundable vs. nonrefundable...
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