SOLUTION MANUAL FOR
Fundamentals of Taxation for Individuals A Practical Approach, 2024 Edition Gregory A.
Carnes, Suzanne Youngberg
Chapter 1—The Professional Practice of Taxation
End-of-Chapter Solutions
Discussion Questions
1.
Title: Discussion Question 1
Difficulty: Easy
Learning Objective 1: 1.1
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.1
Solution:
The goal of tax planning is to maximize after-tax income. After-tax income is net income after
reducing revenue for all expenses including federal income taxes. Tax planning should consider
tax factors as well as non-tax factors.
Time On Task: 2 minutes
2.
Title: Discussion Question 2
Difficulty: Easy
Learning Objective 1: 1.2
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.2
Solution:
The formula to calculate an individual‘s taxable income is as follows:
Gross income
Less: Deductions for Adjusted Gross Income
Adjusted Gross Income
Less: Greater of Standard Deduction or Itemized Deductions
Less: Qualified Business Income Deduction
Taxable income
Time On Task: 2 minutes
3.
Title: Discussion Question 3
Difficulty: Easy
1-1
,Learning Objective 1: 1.2
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.2
Solution:
Form 1040 is used to file an individual‘s income tax return information. Form 1040SR can be
used by those 65 and older.
Time On Task: 1 minute
4.
Title: Discussion Question 4
Difficulty: Medium
Learning Objective 1: 1.3
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.3
Solution:
A lower-income taxpayer needs every after-tax dollar earned to pay bills and does not have much
discretionary income. If the income tax rate increases, the lower-income taxpayer may have to
work more hours at their current job or take on another job to have the same amount of after-tax
income. A wealthier taxpayer may view the increased tax rate adversely but has more flexibility
with their discretionary income. The wealthier taxpayer may view their leisure time as more
important than working extra hours to earn the same after-tax pay.
Time On Task: 4 minutes
5.
Title: Discussion Question 5
Difficulty: Easy
Learning Objective 1: 1.3
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.3
Solution:
Tax planning is the process of estimating an individual‘s tax liability for multiple scenarios
and/or multiple years and considering ways to reduce it. The appropriate goal for tax planning is
to maximize after-tax income. After-tax income is net income after reducing revenue for all
expenses including federal income taxes. Tax compliance is determining the tax effects for
transactions that have already occurred, including the preparation of tax returns.
Time On Task: 4 minutes
6.
Title: Discussion Question 6
1-2
,Difficulty: Medium
Learning Objective 1: 1.3
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.3
Solution:
An open transaction means that the proposed transaction is not yet completed. A closed
transaction means that the relevant events have already happened, and the facts are set. This
distinction is important because in an open transaction, the facts and results can be changed to
achieve a better outcome. A closed transaction does not allow for this.
Time On Task: 3 minutes
7.
Title: Discussion Question 7
Difficulty: Easy
Learning Objective 1: 1.3
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.3
Solution:
The marginal tax rate is the rate that applies to the next additional dollar earned. The average
tax rate is total income tax divided by taxable income. The effective tax rate is total income tax
divided by total income.
Time On Task: 3 minutes
8.
Title: Discussion Question 8
Difficulty: Medium
Learning Objective 1: 1.3
Standard 1: AACSB || Analytic
Standard 2: AICPA || AC: Measurement Analysis and Interpretation
Standard 3: Bloom's || Application
Section Reference 1: 1.3
Solution:
If a taxpayer is in a higher tax bracket in the current year and expects to be in a lower tax bracket
next year, he would have tax savings from delaying the receipt of income to next year. If the
current year‘s tax rate is higher, he would receive more tax benefit from accelerating deductible
expenses into the current year rather than waiting until the next year when the marginal tax rate
would be less.
Time On Task: 4 minutes
9.
Title: Discussion Question 9
Difficulty: Easy
1-3
, Learning Objective 1: 1.3
Standard 1: AACSB || Analytic
Standard 2: AICPA || AC: Measurement Analysis and Interpretation
Standard 3: Bloom's || Application
Section Reference 1: 1.3
Solution:
It would be better to accelerate income into the current year if the taxpayer‘s current income tax
rate is less than it will be in future years.
Time On Task: 2 minutes
10.
Title: Discussion Question 10
Difficulty: Easy
Learning Objective 1: 1.3
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.3
Solution:
Three of the following tax planning opportunities are:
• rates vary across different time periods
• rates vary across different jurisdictions
• rates vary across different types of income, and
• rates vary across different types of taxpayers.
Time On Task: 3 minutes
11.
Title: Discussion Question 11
Difficulty: Medium
Learning Objective 1: 1.3
Standard 1: AACSB || Analytic
Standard 2: AICPA || AC: Measurement Analysis and Interpretation
Standard 3: Bloom's || Application
Section Reference 1: 1.3
Solution:
Tax rates may vary across different jurisdictions. This will result in more or less after-tax cash
flow. The revenue generated may be the same, but the after-tax cash flow could be substantially
different.
Time On Task: 3 minutes
12.
Title: Discussion Question 12
Difficulty: Medium
Learning Objective 1: 1.3
Standard 1: AACSB || Analytic
Standard 2: AICPA || AC: Measurement Analysis and Interpretation
1-4
Fundamentals of Taxation for Individuals A Practical Approach, 2024 Edition Gregory A.
Carnes, Suzanne Youngberg
Chapter 1—The Professional Practice of Taxation
End-of-Chapter Solutions
Discussion Questions
1.
Title: Discussion Question 1
Difficulty: Easy
Learning Objective 1: 1.1
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.1
Solution:
The goal of tax planning is to maximize after-tax income. After-tax income is net income after
reducing revenue for all expenses including federal income taxes. Tax planning should consider
tax factors as well as non-tax factors.
Time On Task: 2 minutes
2.
Title: Discussion Question 2
Difficulty: Easy
Learning Objective 1: 1.2
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.2
Solution:
The formula to calculate an individual‘s taxable income is as follows:
Gross income
Less: Deductions for Adjusted Gross Income
Adjusted Gross Income
Less: Greater of Standard Deduction or Itemized Deductions
Less: Qualified Business Income Deduction
Taxable income
Time On Task: 2 minutes
3.
Title: Discussion Question 3
Difficulty: Easy
1-1
,Learning Objective 1: 1.2
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.2
Solution:
Form 1040 is used to file an individual‘s income tax return information. Form 1040SR can be
used by those 65 and older.
Time On Task: 1 minute
4.
Title: Discussion Question 4
Difficulty: Medium
Learning Objective 1: 1.3
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.3
Solution:
A lower-income taxpayer needs every after-tax dollar earned to pay bills and does not have much
discretionary income. If the income tax rate increases, the lower-income taxpayer may have to
work more hours at their current job or take on another job to have the same amount of after-tax
income. A wealthier taxpayer may view the increased tax rate adversely but has more flexibility
with their discretionary income. The wealthier taxpayer may view their leisure time as more
important than working extra hours to earn the same after-tax pay.
Time On Task: 4 minutes
5.
Title: Discussion Question 5
Difficulty: Easy
Learning Objective 1: 1.3
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.3
Solution:
Tax planning is the process of estimating an individual‘s tax liability for multiple scenarios
and/or multiple years and considering ways to reduce it. The appropriate goal for tax planning is
to maximize after-tax income. After-tax income is net income after reducing revenue for all
expenses including federal income taxes. Tax compliance is determining the tax effects for
transactions that have already occurred, including the preparation of tax returns.
Time On Task: 4 minutes
6.
Title: Discussion Question 6
1-2
,Difficulty: Medium
Learning Objective 1: 1.3
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.3
Solution:
An open transaction means that the proposed transaction is not yet completed. A closed
transaction means that the relevant events have already happened, and the facts are set. This
distinction is important because in an open transaction, the facts and results can be changed to
achieve a better outcome. A closed transaction does not allow for this.
Time On Task: 3 minutes
7.
Title: Discussion Question 7
Difficulty: Easy
Learning Objective 1: 1.3
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.3
Solution:
The marginal tax rate is the rate that applies to the next additional dollar earned. The average
tax rate is total income tax divided by taxable income. The effective tax rate is total income tax
divided by total income.
Time On Task: 3 minutes
8.
Title: Discussion Question 8
Difficulty: Medium
Learning Objective 1: 1.3
Standard 1: AACSB || Analytic
Standard 2: AICPA || AC: Measurement Analysis and Interpretation
Standard 3: Bloom's || Application
Section Reference 1: 1.3
Solution:
If a taxpayer is in a higher tax bracket in the current year and expects to be in a lower tax bracket
next year, he would have tax savings from delaying the receipt of income to next year. If the
current year‘s tax rate is higher, he would receive more tax benefit from accelerating deductible
expenses into the current year rather than waiting until the next year when the marginal tax rate
would be less.
Time On Task: 4 minutes
9.
Title: Discussion Question 9
Difficulty: Easy
1-3
, Learning Objective 1: 1.3
Standard 1: AACSB || Analytic
Standard 2: AICPA || AC: Measurement Analysis and Interpretation
Standard 3: Bloom's || Application
Section Reference 1: 1.3
Solution:
It would be better to accelerate income into the current year if the taxpayer‘s current income tax
rate is less than it will be in future years.
Time On Task: 2 minutes
10.
Title: Discussion Question 10
Difficulty: Easy
Learning Objective 1: 1.3
Standard 1: AACSB || Knowledge
Standard 2: AICPA || AC: Reporting
Standard 3: Bloom's || Knowledge
Section Reference 1: 1.3
Solution:
Three of the following tax planning opportunities are:
• rates vary across different time periods
• rates vary across different jurisdictions
• rates vary across different types of income, and
• rates vary across different types of taxpayers.
Time On Task: 3 minutes
11.
Title: Discussion Question 11
Difficulty: Medium
Learning Objective 1: 1.3
Standard 1: AACSB || Analytic
Standard 2: AICPA || AC: Measurement Analysis and Interpretation
Standard 3: Bloom's || Application
Section Reference 1: 1.3
Solution:
Tax rates may vary across different jurisdictions. This will result in more or less after-tax cash
flow. The revenue generated may be the same, but the after-tax cash flow could be substantially
different.
Time On Task: 3 minutes
12.
Title: Discussion Question 12
Difficulty: Medium
Learning Objective 1: 1.3
Standard 1: AACSB || Analytic
Standard 2: AICPA || AC: Measurement Analysis and Interpretation
1-4
