Ch10. Tax Law Comprehensive Review — Key Summaries for Exams and Practice

The US Tax System at a Glance

Category	Tax	Taxpayer	Key Deadline
Federal / Income	Individual income tax	Individual	April 15 (Form 1040)
Federal / Income	Corporate income tax	Corporation	April 15 (Form 1120)
Federal / Income	S-corp income tax	S-corp (pass-through)	March 15 (Form 1120-S)
Federal / Transfer	Estate tax	Estate	9 months after death (Form 706)
Federal / Transfer	Gift tax	Donor	April 15 (Form 709)
Federal / Employment	Payroll tax (FICA)	Employer + Employee	Deposited per IRS schedule; 941 quarterly
State / Income	State income tax	Individual / corporation	Varies; usually matches federal deadlines
State / Transaction	Sales and use tax	Seller (remitter)	Typically 20th–25th of following month
Local	Property tax	Property owner	Varies by jurisdiction (biannual or annual)
Federal	Capital gains tax	Investor	April 15 (Schedule D with Form 1040)

Individual Income Tax — Key Summary

Computation: Gross income → adjustments → AGI → standard/itemized deductions → taxable income → graduated rates → tentative tax → credits → tax due

Rates (2024, single): 10%, 12%, 22%, 24%, 32%, 35%, 37% (seven brackets)

W-2 withholding: Employees have tax estimated and withheld each paycheck based on Form W-4. The annual Form 1040 is the reconciliation.

Who must file: Gross income > standard deduction ( $14,600 single /$ 29,200 MFJ), or self-employment income ≥ $400, or special taxes apply.

Key deductions and credits:

Standard deduction: $14,600 single /$ 29,200 MFJ
IRA deduction: up to $7,000 ($ 8,000 if 50+)
Child Tax Credit: $2,000 per qualifying child
EITC: up to $7,830 (refundable, 3+ children)
Education credits: American Opportunity (up to $2,500) and Lifetime Learning

Corporate Income Tax — Key Summary

Computation: GAAP net income + M-1 adjustments → taxable income → 21% flat rate → net tax due

Rate: 21% (flat, post-TCJA 2017)

Non-deductible items: Federal income tax itself, fines/penalties, entertainment, 50% of meals, excessive compensation over $1M (covered employees), political contributions

R&D tax credit: Up to 20% of qualifying research expenses above the base amount

NOL rules: Post-2017 losses carry forward indefinitely, deduction capped at 80% of taxable income per year

Sales and Use Tax — Key Summary

Rate: Varies (0% in 5 states; up to 11%+ combined state + local)

Collection mechanism: Seller collects at point of sale; remits to the state

Nexus triggers: Physical presence in a state OR economic nexus (typically $100,000 in sales or 200 transactions)

Resale certificate: Eliminates sales tax on purchases made for resale

Exempt transactions: Groceries, prescription drugs, agricultural inputs (varies by state)

Use tax: Applies when you use a taxable item purchased without paying sales tax

Capital Gains Tax — Key Summary

Computation: Amount realized − adjusted basis = gain recognized → long-term or short-term → rate applied

§ 121 home sale exclusion: $250,000 single /$ 500,000 MFJ of gain excluded if primary residence + 2-year ownership and use requirements met

Long-term rates: 0% / 15% / 20% depending on income (held 12+ months)

Short-term rate: Ordinary income rate (up to 37%)

§ 1031 exchange: Investment/business property → like-kind replacement → gain deferred; 45-day identification + 180-day closing deadlines

Estate and Gift Tax — Key Summary

Rate: 40% on taxable transfers above the lifetime exemption

2024 lifetime exemption: $13.61 million per person ($ 27.22M per couple)

Sunset risk: Exemption may revert to ~$7M after December 31, 2025

Annual gift exclusion: $18,000 per donor per recipient (2024); excludes from taxable gifts entirely

Unlimited exclusions: Direct tuition and medical payments (§ 2503(e)); unlimited marital deduction to US citizen spouse

Key deductions: Unlimited marital deduction, charitable deduction, debts/expenses

Property Tax — Key Summary

Assessment date: Varies by jurisdiction; often January 1

Formula: Assessed value × mill rate = annual tax

Homestead exemption: Most states reduce assessed value for primary residences

SALT deduction cap: $10,000 federal cap on state income + property taxes (Schedule A)

Appeal process: File within deadline; comparable sales evidence is key

Commonly Tested Computation Types

Type 1: Long-Term vs. Short-Term Capital Gains

Gain on stock held 14 months (long-term):
Taxable income puts taxpayer in 15% LTCG rate:
$50,000 gain × 15% = $7,500 tax (vs. $50,000 × 22% = $11,000 if short-term)

Type 2: Sales Tax Collection

Retailer sells $100 product in state with 8% sales tax:
Collects: $100 × 8% = $8 from customer
Remits: $8 to state
Net price received by retailer: $100 (tax is separate)

Type 3: Estate Tax Calculation

Taxable estate: $15,000,000
Less lifetime exemption: ($13,610,000)
Tax base: $1,390,000
Tax at 40%: $556,000

Type 4: Form 1040 Computation

Wages: $80,000
IRA deduction: ($7,000)
AGI: $73,000
Standard deduction (single): ($14,600)
Taxable income: $58,400
Tax: $1,160 (10%) + $4,266 (12%) + $2,464 (22%) = $7,890
Less Child Tax Credit ($2,000): $5,890 tax owed

Tax Law Essentials Series — Complete Review

Chapter	Topic	Key Keywords
Ch1	Structure of taxation	Tax law principles, taxpayer rights, filing deadlines
Ch2	Individual income tax	Form 1040, W-2, deductions, credits, brackets
Ch3	Corporate income tax	Schedule M-1, 21% rate, NOL, R&D credit
Ch4	Sales and use tax	Nexus, resale certificate, use tax, Wayfair
Ch5	Estate and gift tax	$13.61M exemption, annual exclusion, marital deduction
Ch6	Capital gains	§ 121 exclusion, long-term rates, § 1031 exchange
Ch7	Property tax	Mill rate, homestead exemption, SALT cap, Prop 13
Ch8	International tax	Foreign tax credit, BEPS, transfer pricing, FBAR
Ch9	IRS audits and appeals	Taxpayer rights, penalties, Tax Court, Appeals

Learning Checklist

State the key federal tax filing deadlines for Form 1040, 1120, 709, and 706
Compare the rate structures of individual income tax, corporate tax, and capital gains tax
State the § 121 home sale exclusion requirements and limits
Calculate estate tax given a taxable estate exceeding the exemption
Walk through the IRS audit-to-Appeals-to-Tax Court process in the correct order

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