Common Federal Income Tax Deduction Research Paper

Pages: 7 (2248 words)  ·  Bibliography Sources: 5  ·  File: .docx  ·  Level: College Senior  ·  Topic: Economics

SAMPLE EXCERPT . . .
However, not everyone gets to apply this to themselves. For example, if one spouse itemizes deductions, the standard deduction cannot apply to the other spouse no matter what. People that are non-citizens yet work in the United States (people here on work visas, mostly) are sometimes able to use the standard deduction but not always. Estates/trusts, common trust funds and partnerships also do not get the protection of the standard deduction (IRS, 2014).

With all of the above mentioned, there are five that are head and shoulders above the rest. Those five are the home mortgage interest deduction, charitable deductions, income taxes paid, real estate taxes paid and medical/dental expenses. The latter include the aforementioned monies paid pre-tax for health premiums as well as monies paid for healthcare in general although there is a limit of 7.5% of adjusted gross income (AGI) (Daily Finance, 2014), Strangely enough, the top five deductions do not include children and other family credits. However, it does make a bit of sense because most everyone pays taxes to other agencies and that dominates the list, so much of the list is obvious (IRS, 2014).

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However, there are dangers that have to be watched out for that include using deductions or claims of income levels (or taxes due) that are not true. This would include identity theft, telephone scams, phishing, agents or CPA's inflating the refunds that are due when there is no substantiation or the person filing the data knows it to be fault, hiding income or money in general in overseas accounts such as in the Caymans or in Switzerland, agreements with tax bearings that are fraudulent or completely made up, abusive tax structures and so forth (IRS, 2014).

Research Paper on Common Federal Income Tax Deduction Assignment

However, there are legitimate ways to limit or eliminate federal income taxes. A common example of this would be for a small business owner to file as an S-Corporation owner rather than a regular income payer. This allows the corporation to pay taxes only on a dedicated salary rather than on all income like a regular taxpayer has to do. This is entirely legal and many people take advantage but the process can be abused. Paying low-ball salaries to owners to avoid taxes being paid is one example and so is under-reporting or other falsification of income or other figures that impacts tax due such as losses, revenues, money spent on equipment and other expenses and so forth. The key to minimizing taxes paid and keeping the IRS at bay is to use the best taxpaying form that is right for the person involved so as to maximize deductions and credits while at the same time remaining compliant with IRS regulations (IRS, 2014).

Conclusion

In the end, there are a lot of deductions and credits out there and the overall internal revenue code is a wide-ranging morass of tangled rules and laws and these laws change in form and function, if not entirely, every year from year to year. The amount deferrable under a 401k plan changes, the amount of the standard deduction changes and so on and so forth. Even so, the common deductions and credits will not change all that much from year to year in most situations. However, enough does change every year so that vigilance and attention is a necessary commitment. It is important for taxpayers to do a strong and reputable amount of research. When tax advice/filing professionals are used, they should be experienced and witg a clean record as well as the proper certifications such as enrolled agent for CPA (IRS, 2014).

References

IRS. (2014, February 28). Internal Revenue Service. 401(k) Plans. Retrieved February 28, 2014, from http://www.irs.gov/Retirement-Plans/401(k)-Plans

IRS. (2014, February 28). The Health Insurance Marketplace. The Health Insurance Marketplace. Retrieved February 28, 2014, from http://www.irs.gov/uac/Newsroom/The-Health-Insurance-Marketplace

IRS. (2014, February 28). SOI Tax Stats - S Corporation Statistics. SOI Tax Stats - S Corporation Statistics. Retrieved February 28, 2014, from http://www.irs.gov/uac/SOI-Tax-Stats-S-Corporation-Statistics

IRS. (2014, February 28). EP Abusive Tax Transactions - S Corporation ESOP Abuse of Delayed Effective Date for Section 409(p). EP Abusive Tax Transactions - S Corporation ESOP Abuse of Delayed Effective Date for Section 409(p). Retrieved February 28, 2014, from http://www.irs.gov/Retirement-Plans/EP-Abusive-Tax-Transactions-S-Corporation-ESOP-Abuse-of-Delayed-Effective-Date-for-Section-409(p)

IRS. (2014, February 28). Sales Tax Deduction for Vehicle Purchases. Sales Tax Deduction for… [END OF PREVIEW] . . . READ MORE

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