Introduction to Tax Decisions by Individuals and Companies
Course Number 1488
Senior Lecturer Robert C. Pozen
Winter; Q3Q4; 3 credits
This winter semester course will provide future business executives with a broad overview of federal income tax in the US, for both individuals and companies. It will discuss how to reduce the burdens on taxpayers and how to evaluate the policy goals of the tax code.
The first part of the course addresses the tax issues for entrepreneurs and company employees. It explores the tax treatment of retirement plans and health insurance in small businesses. It explains the basic principles for recognizing ordinary income, capital gains and tax deductions or credits. It also reviews the key strategies and vehicles for gift and estate taxes.
The second part of the course addresses the tax issues for corporations and other business entities. It analyzes the tax and other factors critical to the choice of legal form for doing business -- e.g., partnerships or different types of corporations. It reviews the tax rules for raising capital and distributing dividends. It also analyzes the various ways to design mergers with favorable tax effects.
The course is designed to help students make smart tax decisions in organizing their own careers and running small firms; and it will help future financial professionals understand the tax implications of complex transactions. For example, it will provide future managers with knowledge of tax principles relevant to deducting start-up expenses, designing compensation packages and making tax-free acquisitions.
The course is also designed to familiarize students with those aspects of that tax code that have been the subject of heated public debate. Thus, this course is appropriate not only for students who want to do effective tax planning for themselves and large companies but also for students who wish to learn about the major public policy debates on federal income tax.
The course is NOT aimed at students with accounting or legal expertise. It explains the main ideas of the federal income tax: what types of income are taxable, which expenses can be deducted, and the policy goals motivating certain key provisions. The syllabus will include readings from a textbook and other sources in order to educate students with little familiarity with existing tax rules.
The course will be limited to one section of 90 students including cross registrants from other parts of Harvard University (but not the law school). The course grade will be based 50% on class participation and 50% on two exams, one at the end of the first half of the course and the second at the end of the last half of the course. There will be no other papers or written submissions.
The course has three main educational objectives. First, it helps students understand the provisions of the federal income tax code that will apply to them as entrepreneurs or employees. How does the tax code define gross income? What types of expenses can be deducted against gross income? And when will gains be taxed at lower rates?
Second, it helps students working in financial services design tax structures for companies and transactions. What are the tax effects of stock options? What is the different tax impact of cash and stock dividends? And what are the requirements of a tax free merger?
Third, the course engages students in a broader discussion about certain tax provisions with a substantial impact on public policy. For instance, students will learn about the deduction for mortgage interest and evaluate whether its related policy goal (homeownership) is a worthy goal, and whether the tax deduction supports that goal efficiently.