Solutions Manual—Taxation of Individuals, by Spilker et al.
x x x x x x x
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC.
1
, Solutions Manual—Taxation of Individuals, by Spilker et al.
x x x x x x x
SOLUTION MANUAL FOR x x
McGraw-
Hill's Taxation of Individuals 2024 Edition, 15th Edition
x x x x x x x
Spilker
x
Chapter 1-14 x
Chapter 1 x
An Introduction to Tax
x x x
Discussion Questions x
(1) [LO 1] Jessica’s friend Zachary once stated that he couldn’t understand why so
x x x x x x x x x x x x
meone would take a tax course. Why is this a rather naïve view?
x x x x x x x x x x x x
Taxes are a part of everyday life and have a financial effect on many of the major pers
x x x x x x x x x x x x x x x x x
onal decisions that individuals face (e.g., investment decisions, evaluating alternativ
x x x x x x x x x
e job offers, saving for education expenses, gift or estate planning, etc.).
x x x x x x x x x x x
(2) [LO 1] What are some aspects of business that require knowledge of taxation? W
x x x x x x x x x x x x x
hat are some aspects of personal finance that require knowledge of taxation?
x x x x x x x x x x x
Taxes play an important role in fundamental business decisions such as the following
x x x x x x x x x x x x
:
What organizational form should a business use? x x x x x x
Where should the business locate? x x x x
How should business acquisitions be structured?
x x x x x
How should the business compensate employees?
x x x x x
What is the appropriate mix of debt and equity for the business?
x x x x x x x x x x x
Should the business rent or own its equipment and property? x x x x x x x x x
How should the business distribute profits to its owners?
x x x x x x x x
One must consider all transaction costs (including taxes) to evaluate the merits of a tr
x x x x x x x x x x x x x x
ansaction.
Common personal financial decisions that taxes influence include: choosing invest
x x x x x x x x x
ments, retirement planning, choosing to rent or buy a home, evaluating alternative jo
x x x x x x x x x x x x
b offers, saving for education expenses, and doing gift or estate planning.
x x x x x x x x x x x
(3) [LO 1] Describe some ways in which taxes affect the political process in the U
x x x x x x x x x x x x x x
nited States. x
U.S. presidential candidates often distinguish themselves from their opponents
x x x x x x x x
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC.
2
, Solutions Manual—Taxation of Individuals, by Spilker et al. x x x x x x x
based upon their tax rhetoric. Likewise, the major political parties generally have ver
x x x x x x x x x x x x
y diverse views of the appropriate way to tax the public. Determining who is taxed, w
x x x x x x x x x x x x x x x
hat is taxed, and how much is taxed are difficult questions. Voters must have a basic u
x x x x x x x x x x x x x x x x
nderstanding of taxes to evaluate the merits of alternative tax proposals offered by o x x x x x x x x x x x x x
pposing political candidates and their political parties.
x x x x x x
(4) [LO 2] Courtney recently received a speeding ticket on her way to the university. H
x x x x x x x x x x x x x x
er fine was $200. Is this considered a tax? Why or why not?
x x x x x x x x x x x x
The $200 speeding ticket is not considered a tax. Instead, it is considered a fine or
x x x x x x x x x x x x x x x x
penalty. Taxes differ from fines and penalties because taxes are not intended to pu
x x x x x x x x x x x x x
nish or prevent illegal behavior.
x x x x
(5) [LO 2] Marlon and Latoya recently started building a house. They had to pay
x x x x x x x x x x x x x
$300 to the county government for a building permit. Is the $300 payment a tax? W
x x x x x x x x x x x x x x x
hy or why not? x x x
The building permit is not considered a tax because $300 payment is directly linked to
x x x x x x x x x x x x x x
a benefit that they received (i.e., the ability to build a house).
x x x x x x x x x x x x
(6) [LO 2] To help pay for the city’s new stadium, the city of Birmingham recently en
x x x x x x x x x x x x x x x
acted a 1 percent surcharge on hotel rooms. Is this a tax? Why or why not?
x x x x x x x x x x x x x x x
The 1 percent surcharge is a tax. The 1 percent surcharge is an earmarked tax –
x x x x x x x x x x x x x x x
i.e., collected for a specific purpose. The surcharge is considered a tax because the t
x x x x x x x x x x x x x x x
ax payments made by taxpayers do not directly relate to the specific benefit received
x x x x x x x x x x x x x x
by the taxpayers.
x x
(7) [LO 2] As noted in Example 1-x x x x x x
2, tolls, parking meter fees, and annual licensing fees are not considered taxes. Ca
x x x x x x x x x x x x x
n you identify other fees that are similar?
x x x x x x x
There are several possible answers to this question. Some common examples inclu
x x x x x x x x x x x
de entrance fees to national parks, tag fees paid to local/state government for auto
x x x x x x x x x x x x x
mobiles, boats, etc. x x
(8) [LO 2] If the general objective of our tax system is to raise revenue, why does the inc
x x x x x x x x x x x x x x x x x
ome tax allow deductions for charitable contributions and retirement plan contributi
x x x x x x x x x x
ons?
In addition to the general objective of raising revenue, Congress uses the federal tax s
x x x x x x x x x x x x x x
ystem to encourage certain behavior and discourage other behavior. The charitable
x x x x x x x x x x x
contribution deduction is intended to encourage taxpayers to support the initiativesx x x x x x x x x x x
of charitable organizations, whereas deductions for retirement contributions are int
x x x x x x x x x
ended to encourage retirement savings. Another objective of the tax system is to redis
x x x x x x x x x x x x x
tribute wealth. x
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC.
3
, Solutions Manual—Taxation of Individuals, by Spilker et al. x x x x x x x
(9) [LO 2] One common argument for imposing so-
x x x x x x x
called sin taxes is the social goal of reducing demand for such products. Using ciga
x x x x x x x x x x x x x x
rettes as an example, is there a segment of the population that might be sensitive to
x x x x x x x x x x x x x x x x
price and for whom high taxes might discourage purchases?
x x x x x x x x
The most obvious segment sensitive to price may be teenagers and younger adults tha
x x x x x x x x x x x x x
t typically have less disposable income, although price sensitivity or elasticity will va
x x x x x x x x x x x x
ry by taxpayer.
x x
(10) [LO 3] Dontae stated that he didn’t want to earn any more money because it wo
x x x x x x x x x x x x x x x
uld ―put him in a higher tax bracket.‖ What is wrong with Dontae’s reasoning?
x x x x x x x x x x x x x
Although earning additional taxable income may increase Dontae‘s marginal tax rat
x x x x x x x x x x
e (i.e., put him in a higher tax bracket), the additional income earned does not affect t
x x x x x x x x x x x x x x x x
he taxes that Dontae will pay on his existing income. Moving to a higher tax bracket s
x x x x x x x x x x x x x x x x
imply means that Dontae will pay a higher tax rate on the additional income earned (
x x x x x x x x x x x x x x x
not on the income that he already has).
x x x x x x x
(11) [LO 3] Describe the three different tax rates discussed in the chapter and how ta
x x x x x x x x x x x x x x
xpayers might use them. x x x
The marginal tax rate is the tax rate that applies to the taxpayer‘s additional taxable i
x x x x x x x x x x x x x x x
ncome or deductions that the taxpayer is evaluating in a decision.
x x x x x x x x x x
Specifically,
ΔTax ΔTax
Marginal Tax Rate (NewTotalTax OldTotalTax) (NewT
x
x x x x x x
ableIncome axableIncome OldTaxableIncome) x
The marginal tax rate is particularly useful in tax planning because it represents the r
x x x x x x x x x x x x x x
ate of taxation or savings that would apply to additional taxable income or tax deduc
x x x x x x x x x x x x x x
tions.
The average tax rate represents the taxpayer‘s average level of taxation on each doll
x x x x x x x x x x x x x
ar of taxable income. Specifically,
x x x x
TotalTax
Average Tax Rate = x x x
TaxableIncome
The average tax rate is often used in budgeting tax expense as a portion of income (i.e.
x x x x x x x x x x x x x x x x
, what percent of taxable income earned is paid in tax).
x x x x x x x x x x
The effective tax rate represents the taxpayer‘s average rate of taxation on each dolla
x x x x x x x x x x x x x
r of total income (i.e., taxable and nontaxable income). Specifically,
x x x x x x x x x
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC.
4
x x x x x x x
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC.
1
, Solutions Manual—Taxation of Individuals, by Spilker et al.
x x x x x x x
SOLUTION MANUAL FOR x x
McGraw-
Hill's Taxation of Individuals 2024 Edition, 15th Edition
x x x x x x x
Spilker
x
Chapter 1-14 x
Chapter 1 x
An Introduction to Tax
x x x
Discussion Questions x
(1) [LO 1] Jessica’s friend Zachary once stated that he couldn’t understand why so
x x x x x x x x x x x x
meone would take a tax course. Why is this a rather naïve view?
x x x x x x x x x x x x
Taxes are a part of everyday life and have a financial effect on many of the major pers
x x x x x x x x x x x x x x x x x
onal decisions that individuals face (e.g., investment decisions, evaluating alternativ
x x x x x x x x x
e job offers, saving for education expenses, gift or estate planning, etc.).
x x x x x x x x x x x
(2) [LO 1] What are some aspects of business that require knowledge of taxation? W
x x x x x x x x x x x x x
hat are some aspects of personal finance that require knowledge of taxation?
x x x x x x x x x x x
Taxes play an important role in fundamental business decisions such as the following
x x x x x x x x x x x x
:
What organizational form should a business use? x x x x x x
Where should the business locate? x x x x
How should business acquisitions be structured?
x x x x x
How should the business compensate employees?
x x x x x
What is the appropriate mix of debt and equity for the business?
x x x x x x x x x x x
Should the business rent or own its equipment and property? x x x x x x x x x
How should the business distribute profits to its owners?
x x x x x x x x
One must consider all transaction costs (including taxes) to evaluate the merits of a tr
x x x x x x x x x x x x x x
ansaction.
Common personal financial decisions that taxes influence include: choosing invest
x x x x x x x x x
ments, retirement planning, choosing to rent or buy a home, evaluating alternative jo
x x x x x x x x x x x x
b offers, saving for education expenses, and doing gift or estate planning.
x x x x x x x x x x x
(3) [LO 1] Describe some ways in which taxes affect the political process in the U
x x x x x x x x x x x x x x
nited States. x
U.S. presidential candidates often distinguish themselves from their opponents
x x x x x x x x
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC.
2
, Solutions Manual—Taxation of Individuals, by Spilker et al. x x x x x x x
based upon their tax rhetoric. Likewise, the major political parties generally have ver
x x x x x x x x x x x x
y diverse views of the appropriate way to tax the public. Determining who is taxed, w
x x x x x x x x x x x x x x x
hat is taxed, and how much is taxed are difficult questions. Voters must have a basic u
x x x x x x x x x x x x x x x x
nderstanding of taxes to evaluate the merits of alternative tax proposals offered by o x x x x x x x x x x x x x
pposing political candidates and their political parties.
x x x x x x
(4) [LO 2] Courtney recently received a speeding ticket on her way to the university. H
x x x x x x x x x x x x x x
er fine was $200. Is this considered a tax? Why or why not?
x x x x x x x x x x x x
The $200 speeding ticket is not considered a tax. Instead, it is considered a fine or
x x x x x x x x x x x x x x x x
penalty. Taxes differ from fines and penalties because taxes are not intended to pu
x x x x x x x x x x x x x
nish or prevent illegal behavior.
x x x x
(5) [LO 2] Marlon and Latoya recently started building a house. They had to pay
x x x x x x x x x x x x x
$300 to the county government for a building permit. Is the $300 payment a tax? W
x x x x x x x x x x x x x x x
hy or why not? x x x
The building permit is not considered a tax because $300 payment is directly linked to
x x x x x x x x x x x x x x
a benefit that they received (i.e., the ability to build a house).
x x x x x x x x x x x x
(6) [LO 2] To help pay for the city’s new stadium, the city of Birmingham recently en
x x x x x x x x x x x x x x x
acted a 1 percent surcharge on hotel rooms. Is this a tax? Why or why not?
x x x x x x x x x x x x x x x
The 1 percent surcharge is a tax. The 1 percent surcharge is an earmarked tax –
x x x x x x x x x x x x x x x
i.e., collected for a specific purpose. The surcharge is considered a tax because the t
x x x x x x x x x x x x x x x
ax payments made by taxpayers do not directly relate to the specific benefit received
x x x x x x x x x x x x x x
by the taxpayers.
x x
(7) [LO 2] As noted in Example 1-x x x x x x
2, tolls, parking meter fees, and annual licensing fees are not considered taxes. Ca
x x x x x x x x x x x x x
n you identify other fees that are similar?
x x x x x x x
There are several possible answers to this question. Some common examples inclu
x x x x x x x x x x x
de entrance fees to national parks, tag fees paid to local/state government for auto
x x x x x x x x x x x x x
mobiles, boats, etc. x x
(8) [LO 2] If the general objective of our tax system is to raise revenue, why does the inc
x x x x x x x x x x x x x x x x x
ome tax allow deductions for charitable contributions and retirement plan contributi
x x x x x x x x x x
ons?
In addition to the general objective of raising revenue, Congress uses the federal tax s
x x x x x x x x x x x x x x
ystem to encourage certain behavior and discourage other behavior. The charitable
x x x x x x x x x x x
contribution deduction is intended to encourage taxpayers to support the initiativesx x x x x x x x x x x
of charitable organizations, whereas deductions for retirement contributions are int
x x x x x x x x x
ended to encourage retirement savings. Another objective of the tax system is to redis
x x x x x x x x x x x x x
tribute wealth. x
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC.
3
, Solutions Manual—Taxation of Individuals, by Spilker et al. x x x x x x x
(9) [LO 2] One common argument for imposing so-
x x x x x x x
called sin taxes is the social goal of reducing demand for such products. Using ciga
x x x x x x x x x x x x x x
rettes as an example, is there a segment of the population that might be sensitive to
x x x x x x x x x x x x x x x x
price and for whom high taxes might discourage purchases?
x x x x x x x x
The most obvious segment sensitive to price may be teenagers and younger adults tha
x x x x x x x x x x x x x
t typically have less disposable income, although price sensitivity or elasticity will va
x x x x x x x x x x x x
ry by taxpayer.
x x
(10) [LO 3] Dontae stated that he didn’t want to earn any more money because it wo
x x x x x x x x x x x x x x x
uld ―put him in a higher tax bracket.‖ What is wrong with Dontae’s reasoning?
x x x x x x x x x x x x x
Although earning additional taxable income may increase Dontae‘s marginal tax rat
x x x x x x x x x x
e (i.e., put him in a higher tax bracket), the additional income earned does not affect t
x x x x x x x x x x x x x x x x
he taxes that Dontae will pay on his existing income. Moving to a higher tax bracket s
x x x x x x x x x x x x x x x x
imply means that Dontae will pay a higher tax rate on the additional income earned (
x x x x x x x x x x x x x x x
not on the income that he already has).
x x x x x x x
(11) [LO 3] Describe the three different tax rates discussed in the chapter and how ta
x x x x x x x x x x x x x x
xpayers might use them. x x x
The marginal tax rate is the tax rate that applies to the taxpayer‘s additional taxable i
x x x x x x x x x x x x x x x
ncome or deductions that the taxpayer is evaluating in a decision.
x x x x x x x x x x
Specifically,
ΔTax ΔTax
Marginal Tax Rate (NewTotalTax OldTotalTax) (NewT
x
x x x x x x
ableIncome axableIncome OldTaxableIncome) x
The marginal tax rate is particularly useful in tax planning because it represents the r
x x x x x x x x x x x x x x
ate of taxation or savings that would apply to additional taxable income or tax deduc
x x x x x x x x x x x x x x
tions.
The average tax rate represents the taxpayer‘s average level of taxation on each doll
x x x x x x x x x x x x x
ar of taxable income. Specifically,
x x x x
TotalTax
Average Tax Rate = x x x
TaxableIncome
The average tax rate is often used in budgeting tax expense as a portion of income (i.e.
x x x x x x x x x x x x x x x x
, what percent of taxable income earned is paid in tax).
x x x x x x x x x x
The effective tax rate represents the taxpayer‘s average rate of taxation on each dolla
x x x x x x x x x x x x x
r of total income (i.e., taxable and nontaxable income). Specifically,
x x x x x x x x x
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC.
4
