Tax Form Logic

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Tax Form Logic

• By
• James A. Patten, MBA, CPA
• Associate Professor of Accounting
• CSU, Bakersfield

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Think of major tax forms as the top of a pyramid.
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Here is an example using Form 1040-The Individual
Income Tax Return.
Lets assume a single person whose only source
of income is wages.
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The only sub-form would be theW-2(s).
Line 7 (wages) of 1040 would be supported by the
W-2. Line 59 (tax withheld) would also be
supported by the W-2.
The 1040 line numbers used here are for the
2001 form 1040.
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Consider this example!

• Taxpayer has
• Wages
• Interest and Dividend Income
• Self-Employment Income
• Itemized Deductions
• What forms are required?
• How would the forms fit into the pyramid?

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SOLUTION
Line numbers are based on form 1040 for 2001.
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LIFE CAN GET INTERESTING!
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Individual Tax Software Logic
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Corporate Partnership Returns

• Balance sheets are required
• Schedule L (Beginning Ending Balance Sheets)
• Reconciliation of book to taxable income must be
  shown
• Schedule M-1
• Retained earnings/equity change reported
• Schedule M-2
• Many more nosey questions to answer

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Some points to consider.

• Tax forms are not tax law
• Tax forms do reflect the IRS interpretation of
  tax law
• Tax software does not make up for lack of tax
  knowledge
• Change is the only constant in tax law

• Tax law sources
• Legislative (IRC, et al)
• Administrative- U.S. Treasury and IRS rules
  regulations
• JudicialTax CourtDistrict CourtsAppeal
  CourtsSupreme Court
• Your bartender

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