Individual Income Tax USA Indiana State Laws - Research Paper Example

? Individual Income Tax "USA Indiana Laws Summary of Facts The case in this memo is of a taxpayer who is employed as a consultant by UR Needy LLC. She does not have an office to work in because the employer does not provide for the office. She has set a section of her home, one-half of one of her rooms, which therefore is exclusively for her to work. The taxpayer has installed a swimming pool in her rural home in Indiana. Following a recent car accident, the doctor recommended that she use the pool to aid n the process of healing by strengthening her muscles. The taxpayer participates in racecar driving on mini circuit. The car is hers and she is her own mechanic. She lost money during the first two competition years. Taxpayers often receive gifts support the products of racing. The question is whether how the deductions will apply to the swimming pool, the gift, the office, the losses she experienced in racing. It also extends to the treatment that the taxation to the gifts which they receive. Summary of Issues The issue in this scenario is the application of taxation and deductions on incomes according to the Indiana taxation law. It seeks to identify the provision of the taxation law in determining what constitutes taxable income and valid deductions. This is in recognition of the fact that not all assets and incomes are taxable and not all expenses are considered as valid for deduction. The taxation law on income taxes in Indiana recognizes Taxable benefits as any income that is earned from professions or daily business occupation. This is an important information in the preparation of income tax returns. The incomes and benefits in this issue include: The salary of the taxpayer Gifts from Racing The issues or the items to be considered for deductions include: Loss of Money in competition Installation of Swimming Pool Repair of the Car Office Space Used For Work Summary of Conclusion Taxable income The salary of the Taxpayer The Federal Tax laws consider all salaries from employment are automatically valid for taxation. The second major form of income is from businesses or other professional occupations that earn regular income. Gifts from Racing The gifts from racing are a form of regular income that the taxpayer has to declare in the return and include in the taxable income. Taxation applies to the gift. The law states that any citizen, who earns money from lottery or gifts, will add them to the taxable income. The racing gift is therefore a taxable income in the Indiana tax return. The US Federal return refers to them as other income. Deductions Loss of Money in competition According to the Law in Indians, any lost income will be considered as exemption from taxation, if indeed the government investigators have evidences that she lost the money. The investigation proceeds to confirm the status of the losses such that whenever the taxpayer recovers the lost funds, then she will have to include the lost money to the taxable income and pay the full tax. If the amount was a form of assistance or support for any issue, then it will be a legible deduction on the Indiana tax return. In the IT-40 Schedule for the Federal tax return, any form of state tax that is recovered has to be reported in a separate column. There is another column for the deduction recovery for every itemized deduction in IT-40PRN. You may be able to deduct up to $3,000 of the rent paid on your Indiana home. Installation of Swimming Pool The swimming pool was a necessity and the doctor recommended it. This is an added responsibility to support the life of the taxpayer. It has to be deducted from the income tax just like the long-term commitments such as insurance and mortgage. Repair of the Car Because the taxpayer repairs his own car, it does not affect the taxation scale. There is no financial implication or economic influence. Office Space Used For Work The use of office for work, the responsibility and the taxation fall on the taxpayer. She will also require to link with the employer and request for the compensation for the use of his office. The space in the house, which she uses for office work, is considered as a working office and the work in the office is commercially taxable according to the property taxation in Indiana. She will however claim deduction of 75 % of her rental amount in the rent she pays. The space also does not need to attract double benefit. If there was a section of the property taxes was paid on her residential property, was deductible in form of an expenditure on the federal return. The cost of the Car The car is personal asset and is not taxable; neither is it deductible from the taxable benefits. It is an added responsibility to the taxpayer but an optional one. Discussion of issues Swimming Pool Construction There are plan moving on to make changes on the state taxation return in 2011.Section IC 6-3-2-9(c) states that anybody who needs deduction from taxation because of medical problems has to provide evidence that he or she has permanent disability (Gray 56). After the proof, the taxpayer in this case has to adjust her gross earnings and her income tax in the return. Without the proof, the section provides that the taxable income should include the cost of installation of the swimming pool. If the government does not find any reason why the taxpayer should be exempted from tax payment, then the government sends a demand note to her stating the outstanding tax she has to pay as executed in the Schedule IT-2440. A copy of a properly executed Physician's Statement is carried in the R schedule for domestic taxes. Loss of Money in competition Because the taxpayer has lost money in competition, she should prepare a report from police departments, about the loss and the report with the findings about the losses. With the report, she can then apply for exemption of the lost money from the taxable income. The application should be presented to the taxation departments. Gift from Racing The government automatically applies taxation on the gift because it is a form of income from a career-based activity. If she requires exemption from taxation for this amount then she can request for it from the government, the taxation department, with reasons as described in the return form. The state only exempts taxation of special gifts from the very disabled citizens, the aged (retirees), the diplomats and military officers. Salary There is no condition under which the taxpayer can be exempted from taxation of the salary if a private company employs her. The only chance she could have is when her salary is below the minimum taxation threshold for taxable income. Repair of the car The taxpayer is exempted by default from paying taxes on the car cleaning activity. In fact, there is no issue of exemption because it does not involve any exchange of funds. The government has to investigate the possibility of any commercial activity in the car repair. This is can be detected by the investigation if the activity extends to other car owners for the purpose of income generation. The implication can then be commercial consideration of the activity and the taxation authority has the power to demand for payment of taxation for the lost taxes. However, if the taxpayer hires a person to repair the swimming pool, she has the right to claim extra exemption from the taxable income. She then has to provide evidences of the expenditure in form of cash receipt an invoice from the service provider. Office Space Used For Work The office space used for the employer work will require the taxpayer to provide evidences that she is not involved in doing her own business. Otherwise, the government should consider the office space as part of the house, not a commercial environment. It is logical to consider that the in-house services are personal home based occupation just like online services. The government cannot enforce taxation in the real property because the source of income for the taxpayer is the salary from the employer, which has already been paid from the employer end. Issues Considered In the Federal low of taxation in Indiana, the taxation authority considers several issues to determine what is taxable and what is not. The issues are listed below. Issue 1: The Source of the Income The Federal government of the US applies taxation to all forms of income and has a minimum threshold of US $ 200, below which the taxpayer’s salary is exempted from taxation (Gugin 49). However, the salary of the taxpayer in this case has not been stated. The State of Indiana has to apply prevailing scale of taxation, which the employer ought to access prior to the calculation of taxes. Gifts and lottery income are other sources of taxable income. Exemption therefore applies incomes from salaries above US $ 200, Business Income and other sources of regular income. Issue 2: The nature of Activity and its implication The government of the Federal State of Indiana considers the type of activity and the business premises in their contribution to the income of the taxpayer. For example, the car repair activity is not an income generating activity, neither is it an added expenditure to the taxpayer. Issue 2: Duration of the Obligation The government of the US recognizes the duration of financial obligations of the taxpayer as: Long term Obligations Short-term obligations Long-term obligations include obligations like terminal sicknesses and disabilities, insurance policies, Mortgages and retirement funds (Social Security Scheme). This taxpayer is involved in dealing with disability, which she has to live with. The government therefore approves the exemption of the swimming pool to assist the taxpayer in the recovery process. Works Cited Gray, Ralph. Indiana History: A Book of Readings. Indiana: Indiana University Press, 1995. Gugin, Linda, & Clair James. The Governors of Indiana. Indianapolis: Indiana Historical Society Press, 2006. Read More