Solution Manual for McGraw-Hill's Taxation of
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Individuals 2024 Edition, 15th Edition
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By Brian Spilker, Benjamin Ayers, All Chapters 1 - 14
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,TABLE OF CONTENTS b b b
Part I: Introduction to Taxation
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Chapter 1: An Introduction to Tax
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Chapter 2: Tax Compliance, the IRS, and Tax Authorities
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Chapter 3: Tax Planning Strategies and Related Limitations
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Part II: Basic Individual Taxation
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Chapter 4: Individual Income Tax Overview, Dependents, and Filing Status
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Chapter 5: Gross Income and Exclusions
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Chapter 6: Individual Deductions
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Chapter 7: Investments
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Chapter 8: Individual Income Tax Computation and Tax Credits
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Part III: Business-Related Transactions
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Chapter 9: Business Income, Deductions, and Accounting Methods
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Chapter 10: Property Acquisition and Cost Recovery
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Chapter 11: Property Dispositions
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Part IV: Specialized Topics
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Chapter 12: Compensation
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Chapter 13: Retirement Savings and Deferred Compensation
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Chapter 14: Tax Consequences of Home Ownership
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,Chapter 1 b
An Introduction to Tax
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Discussion Questions
b
(1) [LO 1] Jessica’s friend Zachary once stated that he couldn’t understand why
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someone would take a tax course. Why is this a rather naïve view?
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Taxes are a part of everyday life and have a financial effect on many of the major personal decisions that
b b b b b b b b b b b b b b b b b b b
individuals face (e.g., investment decisions, evaluating alternative job offers, saving for education
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expenses, gift or estate planning, etc.).
b b b b b b
(2) [LO 1] What are some aspects of business that require knowledge of taxation? What are
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some aspects of personal finance that require knowledge of taxation?
b b b b b b b b b b
Taxes play an important role in fundamental business decisions such as the following:
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• What organizational form should a business use? b b b b b b
• Where should the business locate? b b b b
• How should business acquisitions be structured? b b b b b
• How should the business compensate employees? b b b b b
• What is the appropriate mix of debt and equity for the business? b b b b b b b b b b b
• Should the business rent or own its equipment and property? b b b b b b b b b
• How should the business distribute profits to its owners? b b b b b b b b
One must consider all transaction costs (including taxes) to evaluate the merits of a transaction.
b b b b b b b b b b b b b b
Common personal financial decisions that taxes influence include: choosing investments, retirement
b b b b b b b b b b
planning, choosing to rent or buy a home, evaluating alternative job offers, saving for education expenses,
b b b b b b b b b b b b b b b b
and doing gift or estate planning.
b b b b b b
(3) [LO 1] Describe some ways in which taxes affect the political process in the United
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States.
b
U.S. presidential candidates often distinguish themselves from their opponents
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, based upon their tax rhetoric. Likewise, the major political parties generally have very diverse views of the
b b b b b b b b b b b b b b b b
appropriate way to tax the public. Determining who is taxed, what is taxed, and how much is taxed are
b b b b b b b b b b b b b b b b b b b
difficult questions. Voters must have a basic understanding of taxes to evaluate the merits of alternative tax
b b b b b b b b b b b b b b b b b
bproposals offered by opposing political candidates and their political parties.
b b b b b b b b b
(4) [LO 2] Courtney recently received a speeding ticket on her way to the university. Her fine
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was $200. Is this considered a tax? Why or why not?
b b b b b b b b b b b
The $200 speeding ticket is not considered a tax. Instead, it is considered a fine or penalty. Taxes differ
b b b b b b b b b b b b b b b b b b
from fines and penalties because taxes are not intended to punish or prevent illegal behavior.
b b b b b b b b b b b b b b b
(5) [LO 2] Marlon and Latoya recently started building a house. They had to pay
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$300 to the county government for a building permit. Is the $300 payment a tax? Why or why
b b b b b b b b b b b b b b b b b
not?
b
The building permit is not considered a tax because $300 payment is directly linked to a benefit that they
b b b b b b b b b b b b b b b b b b
received (i.e., the ability to build a house).
b b b b b b b b
(6) [LO 2] To help pay for the city’s new stadium, the city of Birmingham recently enacted a 1
b b b b b b b b b b b b b b b b b
percent surcharge on hotel rooms. Is this a tax? Why or why not?
b b b b b b b b b b b b b
The 1 percent surcharge is a tax. The 1 percent surcharge is an earmarked tax – i.e., collected for a specific
b b b b b b b b b b b b b b b b b b b b
purpose. The surcharge is considered a tax because the tax payments made by taxpayers do not directly relate
b b b b b b b b b b b b b b b b b b
to the specific benefit received by the taxpayers.
b b b b b b b b
(7) [LO 2] As noted in Example 1-2, tolls, parking meter fees, and annual licensing fees are not
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considered taxes. Can you identify other fees that are similar?
b b b b b b b b b b
There are several possible answers to this question. Some common examples include entrance fees to
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national parks, tag fees paid to local/state government for automobiles, boats, etc.
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(8) [LO 2] If the general objective of our tax system is to raise revenue, why does the income tax
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allow deductions for charitable contributions and retirement plan contributions?
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In addition to the general objective of raising revenue, Congress uses the federal tax system to encourage
b b b b b b b b b b b b b b b b
certain behavior and discourage other behavior. The charitable contribution deduction is intended to
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encourage taxpayers to support the initiatives of charitable organizations, whereas deductions for
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retirement contributions are intended to encourage retirement savings. Another objective of the tax
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system is to redistribute wealth.
b b b b b
b b b b b
Individuals 2024 Edition, 15th Edition
b b b b b
By Brian Spilker, Benjamin Ayers, All Chapters 1 - 14
b b b b b b b b b
,TABLE OF CONTENTS b b b
Part I: Introduction to Taxation
b b b b
Chapter 1: An Introduction to Tax
b b b b b
Chapter 2: Tax Compliance, the IRS, and Tax Authorities
b b b b b b b b
Chapter 3: Tax Planning Strategies and Related Limitations
b b b b b b b
Part II: Basic Individual Taxation
b b b b
Chapter 4: Individual Income Tax Overview, Dependents, and Filing Status
b b b b b b b b b
Chapter 5: Gross Income and Exclusions
b b b b b
Chapter 6: Individual Deductions
b b b
Chapter 7: Investments
b b
Chapter 8: Individual Income Tax Computation and Tax Credits
b b b b b b b b
Part III: Business-Related Transactions
b b b
Chapter 9: Business Income, Deductions, and Accounting Methods
b b b b b b b
Chapter 10: Property Acquisition and Cost Recovery
b b b b b b
Chapter 11: Property Dispositions
b b b
Part IV: Specialized Topics
b b b
Chapter 12: Compensation
b b
Chapter 13: Retirement Savings and Deferred Compensation
b b b b b b
Chapter 14: Tax Consequences of Home Ownership
b b b b b b
,Chapter 1 b
An Introduction to Tax
b b b
Discussion Questions
b
(1) [LO 1] Jessica’s friend Zachary once stated that he couldn’t understand why
b b b b b b b b b b b
someone would take a tax course. Why is this a rather naïve view?
b b b b b b b b b b b b
Taxes are a part of everyday life and have a financial effect on many of the major personal decisions that
b b b b b b b b b b b b b b b b b b b
individuals face (e.g., investment decisions, evaluating alternative job offers, saving for education
b b b b b b b b b b b b
expenses, gift or estate planning, etc.).
b b b b b b
(2) [LO 1] What are some aspects of business that require knowledge of taxation? What are
b b b b b b b b b b b b b b
some aspects of personal finance that require knowledge of taxation?
b b b b b b b b b b
Taxes play an important role in fundamental business decisions such as the following:
b b b b b b b b b b b b
• What organizational form should a business use? b b b b b b
• Where should the business locate? b b b b
• How should business acquisitions be structured? b b b b b
• How should the business compensate employees? b b b b b
• What is the appropriate mix of debt and equity for the business? b b b b b b b b b b b
• Should the business rent or own its equipment and property? b b b b b b b b b
• How should the business distribute profits to its owners? b b b b b b b b
One must consider all transaction costs (including taxes) to evaluate the merits of a transaction.
b b b b b b b b b b b b b b
Common personal financial decisions that taxes influence include: choosing investments, retirement
b b b b b b b b b b
planning, choosing to rent or buy a home, evaluating alternative job offers, saving for education expenses,
b b b b b b b b b b b b b b b b
and doing gift or estate planning.
b b b b b b
(3) [LO 1] Describe some ways in which taxes affect the political process in the United
b b b b b b b b b b b b b b
States.
b
U.S. presidential candidates often distinguish themselves from their opponents
b b b b b b b b
, based upon their tax rhetoric. Likewise, the major political parties generally have very diverse views of the
b b b b b b b b b b b b b b b b
appropriate way to tax the public. Determining who is taxed, what is taxed, and how much is taxed are
b b b b b b b b b b b b b b b b b b b
difficult questions. Voters must have a basic understanding of taxes to evaluate the merits of alternative tax
b b b b b b b b b b b b b b b b b
bproposals offered by opposing political candidates and their political parties.
b b b b b b b b b
(4) [LO 2] Courtney recently received a speeding ticket on her way to the university. Her fine
b b b b b b b b b b b b b b b
was $200. Is this considered a tax? Why or why not?
b b b b b b b b b b b
The $200 speeding ticket is not considered a tax. Instead, it is considered a fine or penalty. Taxes differ
b b b b b b b b b b b b b b b b b b
from fines and penalties because taxes are not intended to punish or prevent illegal behavior.
b b b b b b b b b b b b b b b
(5) [LO 2] Marlon and Latoya recently started building a house. They had to pay
b b b b b b b b b b b b b
$300 to the county government for a building permit. Is the $300 payment a tax? Why or why
b b b b b b b b b b b b b b b b b
not?
b
The building permit is not considered a tax because $300 payment is directly linked to a benefit that they
b b b b b b b b b b b b b b b b b b
received (i.e., the ability to build a house).
b b b b b b b b
(6) [LO 2] To help pay for the city’s new stadium, the city of Birmingham recently enacted a 1
b b b b b b b b b b b b b b b b b
percent surcharge on hotel rooms. Is this a tax? Why or why not?
b b b b b b b b b b b b b
The 1 percent surcharge is a tax. The 1 percent surcharge is an earmarked tax – i.e., collected for a specific
b b b b b b b b b b b b b b b b b b b b
purpose. The surcharge is considered a tax because the tax payments made by taxpayers do not directly relate
b b b b b b b b b b b b b b b b b b
to the specific benefit received by the taxpayers.
b b b b b b b b
(7) [LO 2] As noted in Example 1-2, tolls, parking meter fees, and annual licensing fees are not
b b b b b b b b b b b b b b b b
considered taxes. Can you identify other fees that are similar?
b b b b b b b b b b
There are several possible answers to this question. Some common examples include entrance fees to
b b b b b b b b b b b b b b
national parks, tag fees paid to local/state government for automobiles, boats, etc.
b b b b b b b b b b b b
(8) [LO 2] If the general objective of our tax system is to raise revenue, why does the income tax
b b b b b b b b b b b b b b b b b b
allow deductions for charitable contributions and retirement plan contributions?
b b b b b b b b b
In addition to the general objective of raising revenue, Congress uses the federal tax system to encourage
b b b b b b b b b b b b b b b b
certain behavior and discourage other behavior. The charitable contribution deduction is intended to
b b b b b b b b b b b b b
encourage taxpayers to support the initiatives of charitable organizations, whereas deductions for
b b b b b b b b b b b b
retirement contributions are intended to encourage retirement savings. Another objective of the tax
b b b b b b b b b b b b b
system is to redistribute wealth.
b b b b b
