Income TaxFederal.docx

Income TaxFederal.docx

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IncomeTaxFederal

Taxableincome（Dallasnostateandlocalincometax）

（a）Ingeneral

Taxableincomeisgrossincomelessexemptions,deductions,andpersonalexemptions.Grossincomeforfederalandmoststatesisreceiptsandgainsfromallsourceslesscostofgoodssold.Grossincomeincludes"allincomefromwhateversource,"andisnotlimitedtocashreceived.Certainincome,however,issubjecttotaxexemptionatthefederaland/orstatelevels.Thisincomeisreducedbytaxdeductionsincludingmostbusinessandsomenonbusinessexpenses.Theallowanceofsomenonbusinessdeductionsisphasedoutathigherincomelevels.

TheU.S.federalandmoststateincometaxsystemstaxtheworldwideincomeofcitizensandresidents.Afederalforeigntaxcreditisgrantedforforeignincometaxes.Thesecreditsaregenerallylimitedtotheamountoftaxonincomefromforeign（orotherstate）sources.

Certaintypesofincomeareexcludedfromgrossincome（andthereforesubjecttotaxexemption）.Theexclusionsdifferatfederalandstatelevels.Forfederalincometax,interestincomeonstateandlocalbondsisexempt,whilefewstatesexemptanyinterestincomeexceptfrommunicipalitieswithinthatstate.Inaddition,certaintypesofreceipts,suchasgiftsandinheritances,andcertaintypesofbenefits,suchasemployer-providedhealthinsurance,areexcludedfromincome.

（a）Corporationsingeneral

Ataxisherebyimposedforeachtaxableyearonthetaxableincomeofeverycorporation.Thetaxistaxableincome,asdefined,timesaspecifiedtaxrate.Thistaxmaybereducedbycredits,someofwhichmayberefundediftheyexceedthetaxcalculated.

UndertheU.S.system,individuals,corporations,estates,andtrustsaresubjecttoincometax.Partnershipsarenottaxed;rather,theirpartnersaresubjecttoincometaxontheirsharesofincomeanddeductions,andtaketheirsharesofcredits.CorporationsownedentirelybyU.S.citizensorresidents（Scorporations）mayelecttobetreatedsimilarlytopartnerships.Alimitedliabilitycompanyandcertainotherbusinessentitiesmayelecttobetreatedascorporationsoraspartnerships.Statesgenerallyfollowsuchcharacterization.ManystatesalsoallowcorporationstoelectScorporationstatus.Charitableorganizationsaresubjecttotaxonbusinessincome.

Certaintransactionsofbusinessentitiesarenotsubjecttotax.Theseincludemanytypesofformationorreorganization.

Taxpayersarerequiredtofiletaxreturnsandselfassesstax.Taxmaybewithheldfrompaymentsofincome（e.g.,withholdingoftaxfromwages）.Totheextenttaxesarenotcoveredbywithholdings,taxpayersmustmakeestimatedtaxpayments,generallyquarterly.Taxreturnsaresubjecttoreviewandadjustmentbytaxingauthorities,thoughfarlessthanallreturnsarereviewed.

（b）Amountoftax

（1）Ingeneral

Corporationsaresubjecttofederalgraduatedratesoftaxfrom15%to35%;Stateincometaxratesvaryfrom1%to16%,includinglocalincometaxwhereapplicable.Stateandlocaltaxesaregenerallydeductibleincomputingfederaltaxableincome.

Theamountofthetaximposedbysubsection（a）shallbethesumof—

（A）15percentofsomuchofthetaxableincomeasdoesnotexceed$50,000,

（B）25percentofsomuchofthetaxableincomeasexceeds$50,000butdoesnotexceed$75,000,

（C）34percentofsomuchofthetaxableincomeasexceeds$75,000butdoesnotexceed$10,000,000,and

（D）35percentofsomuchofthetaxableincomeasexceeds$10,000,000.

Inthecaseofacorporationwhichhastaxableincomeinexcessof$100,000foranytaxableyear,theamountoftaxdeterminedundertheprecedingsentenceforsuchtaxableyearshallbeincreasedbythelesserof（i）5percentofsuchexcess,or（ii）$11,750.Inthecaseofacorporationwhichhastaxableincomeinexcessof$15,000,000,theamountofthetaxdeterminedundertheforegoingprovisionsofthisparagraphshallbeincreasedbyanadditionalamountequaltothelesserof（i）3percentofsuchexcess,or（ii）$100,000.

（2）Certainpersonalservicecorporationsnoteligibleforgraduatedrates

Notwithstandingparagraph

（1）,theamountofthetaximposedbysubsection（a）onthetaxableincomeofaqualifiedpersonalservicecorporation（asdefinedinsection448（d）

（2））shallbeequalto35percentofthetaxableincome.

Federalandstateincometaxiscalculated,andreturnsfiled,foreachtaxpayer.Parent-subsidiarygroupsofcompaniesmayelecttofileaconsolidatedreturn.

（c）Exceptions

TheU.S.systemallowsreductionoftaxableincomeforbothbusinessandsomenonbusinessexpenditures,calleddeductions.Businessessellinggoodsreducegrossincomedirectlybythecostofgoodssold.Inaddition,businessesmaydeductmosttypesofexpensesincurredinthebusiness.Someofthesedeductionsaresubjecttolimitations.Forexample,only50%oftheamountincurredforanymealsorentertainmentmaybededucted.Theamountandtimingofdeductionsforbusinessexpensesisdeterminedunderthetaxpayer'staxaccountingmethod,whichmaydifferfrommethodsusedinaccountingrecords.

Sometypesofbusinessexpensesaredeductibleoveraperiodofyearsratherthanwhenincurred.Theseincludethecostoflonglivedassetssuchasbuildingsandequipment.Thecostofsuchassetsisrecoveredthroughdeductionsfordepreciationoramortization.

Subsection（a）shallnotapplytoacorporationsubjecttoataximposedby—

（1）section594（relatingtomutualsavingsbanksconductinglifeinsurancebusiness）,

（2）subchapterL（sec.801andfollowing,relatingtoinsurancecompanies）,or

（3）subchapterM（sec.851andfollowing,relatingtoregulatedinvestmentcompaniesandrealestateinvestmenttrusts）.

Credits

Awidevarietyoftaxcreditsmayreduceincometaxatthefederalandstatelevels.Somecredits,suchastheWorkOpportunityTaxCredit,areavailabletobusinesses,includingvariousspecialindustryincentives.Afewcredits,suchastheforeigntaxcredit,areavailabletoalltypesoftaxpayers.

Paymentorwithholdingoftaxes

TheUnitedStatesfederalandstateincometaxsystemsareself-assessmentsystems.Taxpayersmustdeclareandpaytaxwithoutassessmentbythetaxingauthority.Quarterlypaymentsoftaxestimatedtobeduearerequiredtotheextenttaxesarenotpaidthroughwithholdings.Employersmustwithholdincometax,aswellasSocialSecurityandMedicaretaxes,fromwages.AmountstobewithheldarecomputedbyemployersbasedonrepresentationsoftaxstatusbyemployeesonFormW-4,withlimitedgovernmentreview.

Statevariations

43statesandmanylocalitiesintheUnitedStatesimposeanincometaxonindividuals.47statesandmanylocalitiesimposeataxontheincomeofcorporations.Taxratesvarybystateandlocality,andmaybefixedorgraduated.Mostratesarethesameforalltypesofincome.Stateandlocalincometaxesareimposedinadditiontofederalincometax.Stateincometaxisallowedasadeductionincomputingfederalincometax,subjecttolimitationsforindividuals.

Stateandlocaltaxableincomeisdeterminedunderstatelaw,andoftenisbasedonfederaltaxableincome.Moststatesconformtomanyfederalconceptsanddefinitions,includingdefiningincomeandbusinessdeductionsandtimingthereof.Staterulesvarywidelywithregardtoindividualitemizeddeductions.Moststatesdonotallowadeductionforstateincometaxesforindividualsorcorporations,andimposetaxoncertaintypesofincomeexemptatthefederallevel.

Somestateshavealternativemeasuresoftaxableincome,oralternativetaxes,especiallyforcorporations.

Statesimposinganincometaxgenerallytaxallincomeofcorporationsorganizedinthestateandindividualsresidinginthestate.Taxpayersfromanotherstatearesubjecttotaxonlyonincomeearnedinthestateorapportionedtothestate.Businessesaresubjecttoincometaxinastateonlyiftheyhavesufficientnexusin（connectionto）thestate.

Nonresidents

ForeignindividualsandcorporationsnotresidentintheUnitedStatesaresubjecttofederalincometaxonlyonincomefromaU.S.businessandcertaintypesofincomefromU.S.sources.[42]Theyaresubjecttoadifferenttransfertax（estateandgifttaxes）regimethanaU.S.taxpayer.[43]Statestaxindividualsresidentoutsidethestateandcorporationsorganizedoutsidethestateonlyonwagesorbusinessincomewithinthestate.Payersofsometypesofincometononresidentsmustwithholdfederalorstateincometaxonthepayment.Federalwithholdingof30%onsuchincomemaybereducedunderataxtreaty.Suchtreatiesdonotapplytostatetaxes.

Alternativetaxbases（AMT,states）

AnAlternativeMinimumTax（AMT）isimposedatthefederallevelonasomewhatmodifiedversionoftaxableincome.[44]Thetaxappliestoindividualsandcorporations.Thetaxbaseisadjustedgrossincomereducedbyafixeddeductionthatvariesbytaxpayerfilingstatus.Itemizeddeductionsofindividualsarelimitedtohomemortgageinterest,charitablecontributions,andaportionofmedicalexpenses.AMTisimposedatarateof26%or28%forindividualsand20%forcorporations,lesstheamountofregulartax.Acreditagainstfutureregularincometaxisallowedforsuchexcess,withcertainrestrictions.

Manystatesimposeminimumincometaxesoncorporationsand/orataxcomputedonanalternativetaxbase.Theseincludetaxesbasedoncapitalofcorporationsandalternativemeasuresofincomeforindividuals.Detailsvarywidelybystate.

Differencesbetweenbookandtaxableincomeforbusinesses

IntheUnitedStates,taxableincomeiscomputedunderrulesthatdiffermateriallyfromU.S.generallyacceptedaccountingprinciples.Sinceonlypubliclytradedcompaniesarerequ