1. Case study: Tax Avoidance and Tax Evasion
As stated in the text, the biggest challenge the tax administration has is cheating (Rosen & Gayer, 2014). There is difference between tax avoidance, which is legal and a good business practice, and tax evasion, which is failing to pay due taxes (Rosen & Gayer, 2014). The public finance principle of tax avoidance is efficient. In the case reviewed, it is suggested that having a fiscal year end on December 31st drives companies to be more aggressive in the tax behaviors (Lingxiang, Winkelman, & D’Amico, 2014). More than 60% of U.S. public companies share the December 31st year end fiscal year (Lingxiang et al., 2014). Lingxiang, Winkelman, & D 'Amico analyze the potential for firms to have higher …show more content…
Both state and federal credit unions are exempt from paying federal income taxes. There have been many debates in recent years on whether credit unions should remain exempt. Credit unions received their exemption due to the unique nature of our business. Credit unions operate without corporate stock, we are organized for mutual purposes, and we are a not for profit organization. This exemption has a significant impact on the stability of most credit unions. It is estimated that credit unions save approximately 2 billion dollars every year by not paying corporate income taxes (Matthews, 2013). The principle of federal income tax is efficient, and for credit unions, the practice of receiving the federal income tax exemption is efficient. There are many inefficient components on both sides of this equation. If the U.S. government could collect more taxes it would be an efficient move that could help pay down the federal deficit. The American Bankers Association has been lobbying for years that the credit union exemption should be removed and the credit unions are not unique in nature as they were once thought to be. Although this would be a significant increase to the amount of taxes generated, it would also put financial strains on credit unions, whose primary purpose is provide their members with a source of personal loans and other financial services in a cooperative …show more content…
This tax is very insignificant in terms of the amount of contribution it adds to the overall federal revenues raised. It is estimated that less than 1% of estates ever pay it and it generates only about half of a percent of the federal tax revenues (Rosen & Gayer, 2014).
As a personal application it is important for me to learn more about estate taxes and how I should manage my own personal finances. Over the past few years I have had to help close out the estate of both my father, which was somewhat easier, as it transferred to my mother, and my grandmother. I will also be the executor of my mother’s estate, and making decisions on how to handle her assets. It is important for me to understand what the benefits of having a trust are and what structure will be most beneficial for her during her life, and for my family when closing out her estate after she passes. There are several different ways to transfer wealth without bearing any taxes and without losing control of the property during your lifetime (Rosen & Gayer, 2014). In terms of financial principles, I believe the current practice of estate and gift taxes is inefficient. Many dollars are not collected in term of tax revenue and this principle plays a very insignificant role in the federal tax revenue. Integrating the estate and gift tax system into the personal income tax seems to be an improvement to the system,
As stated in the text, the biggest challenge the tax administration has is cheating (Rosen & Gayer, 2014). There is difference between tax avoidance, which is legal and a good business practice, and tax evasion, which is failing to pay due taxes (Rosen & Gayer, 2014). The public finance principle of tax avoidance is efficient. In the case reviewed, it is suggested that having a fiscal year end on December 31st drives companies to be more aggressive in the tax behaviors (Lingxiang, Winkelman, & D’Amico, 2014). More than 60% of U.S. public companies share the December 31st year end fiscal year (Lingxiang et al., 2014). Lingxiang, Winkelman, & D 'Amico analyze the potential for firms to have higher …show more content…
Both state and federal credit unions are exempt from paying federal income taxes. There have been many debates in recent years on whether credit unions should remain exempt. Credit unions received their exemption due to the unique nature of our business. Credit unions operate without corporate stock, we are organized for mutual purposes, and we are a not for profit organization. This exemption has a significant impact on the stability of most credit unions. It is estimated that credit unions save approximately 2 billion dollars every year by not paying corporate income taxes (Matthews, 2013). The principle of federal income tax is efficient, and for credit unions, the practice of receiving the federal income tax exemption is efficient. There are many inefficient components on both sides of this equation. If the U.S. government could collect more taxes it would be an efficient move that could help pay down the federal deficit. The American Bankers Association has been lobbying for years that the credit union exemption should be removed and the credit unions are not unique in nature as they were once thought to be. Although this would be a significant increase to the amount of taxes generated, it would also put financial strains on credit unions, whose primary purpose is provide their members with a source of personal loans and other financial services in a cooperative …show more content…
This tax is very insignificant in terms of the amount of contribution it adds to the overall federal revenues raised. It is estimated that less than 1% of estates ever pay it and it generates only about half of a percent of the federal tax revenues (Rosen & Gayer, 2014).
As a personal application it is important for me to learn more about estate taxes and how I should manage my own personal finances. Over the past few years I have had to help close out the estate of both my father, which was somewhat easier, as it transferred to my mother, and my grandmother. I will also be the executor of my mother’s estate, and making decisions on how to handle her assets. It is important for me to understand what the benefits of having a trust are and what structure will be most beneficial for her during her life, and for my family when closing out her estate after she passes. There are several different ways to transfer wealth without bearing any taxes and without losing control of the property during your lifetime (Rosen & Gayer, 2014). In terms of financial principles, I believe the current practice of estate and gift taxes is inefficient. Many dollars are not collected in term of tax revenue and this principle plays a very insignificant role in the federal tax revenue. Integrating the estate and gift tax system into the personal income tax seems to be an improvement to the system,