Solution Manual for McGraw-Hill's Taxation of Individuals 2024 Edition, 15th Edition By Brian Spilker, Benjamin Ayers, All Chapters 1 - 14

Solutions Manual—Taxation of Individuals, by Spilker et al.
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, Solutions Manual—Taxation of Individuals, by Spilker et al. f f f f f f f




SOLUTION MANUAL FOR f f



McGraw-
Hill's Taxation of Individuals 2024 Edition, 15th Edition
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Spilker
Chapter 1-14 f




Chapter 1 f



An Introduction to Tax
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Discussion Questions f




(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 person
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al decisions that individuals face (e.g., investment decisions, evaluating alternative jo
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b offers, saving for education expenses, gift or estate planning, etc.).
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(2) [LO 1] What are some aspects of business that require knowledge of taxation? Wh
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at are some aspects of personal finance that require knowledge of taxation?
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Taxes play an important role in fundamental business decisions such as the following:
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 What organizational form should a business use? f f f f f f


 Where should the business locate? f f f f


 How should business acquisitions be structured? f f f f f


 How should the business compensate employees? f f f f f


 What is the appropriate mix of debt and equity for the business? f f f f f f f f f f f


 Should the business rent or own its equipment and property? f f f f f f f f f


 How should the business distribute profits to its owners? f f f f f f f f


One must consider all transaction costs (including taxes) to evaluate the merits of a tra
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nsaction.

Common personal financial decisions that taxes influence include: choosing investme
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nts, retirement planning, choosing to rent or buy a home, evaluating alternative job off
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ers, saving for education expenses, and doing gift or estate planning.
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(3) [LO 1] Describe some ways in which taxes affect the political process in the Unit
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ed States. f




U.S. presidential candidates often distinguish themselves from their opponents
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, Solutions Manual—Taxation of Individuals, by Spilker et al. f f f f f f f




based upon their tax rhetoric. Likewise, the major political parties generally have very
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diverse views of the appropriate way to tax the public. Determining who is taxed, what i
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s taxed, and how much is taxed are difficult questions. Voters must have a basic underst
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anding of taxes to evaluate the merits of alternative tax proposals offered by opposing
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political candidates and their political parties. f f f f f




(4) [LO 2] Courtney recently received a speeding ticket on her way to the university. Her
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fine was $200. Is this considered a tax? Why or why not?
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The $200 speeding ticket is not considered a tax. Instead, it is considered a fine or pe
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nalty. Taxes differ from fines and penalties because taxes are not intended to punish
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or prevent illegal behavior.
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(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
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or why not?
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The building permit is not considered a tax because $300 payment is directly linked to a
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benefit that they received (i.e., the ability to build a house).
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(6) [LO 2] To help pay for the city’s new stadium, the city of Birmingham recently enac
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ted a 1 percent surcharge on hotel rooms. Is this a tax? Why or why not?
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The 1 percent surcharge is a tax. The 1 percent surcharge is an earmarked tax –
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i.e., collected for a specific purpose. The surcharge is considered a tax because the tax
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payments made by taxpayers do not directly relate to the specific benefit received by th
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e taxpayers.
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(7) [LO 2] As noted in Example 1- f f f f f f


2, tolls, parking meter fees, and annual licensing fees are not considered taxes. Can
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you identify other fees that are similar?
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There are several possible answers to this question. Some common examples include
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entrance fees to national parks, tag fees paid to local/state government for automobil
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es, boats, etc. f f




(8) [LO 2] If the general objective of our tax system is to raise revenue, why does the inco
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me tax allow deductions for charitable contributions and retirement plan contribution
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s?

In addition to the general objective of raising revenue, Congress uses the federal tax sy
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stem to encourage certain behavior and discourage other behavior. The charitable co
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ntribution deduction is intended to encourage taxpayers to support the initiatives of ch
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aritable organizations, whereas deductions for retirement contributions are intended
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to encourage retirement savings. Another objective of the tax system is to redistribute
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wealth.
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, Solutions Manual—Taxation of Individuals, by Spilker et al. f f f f f f f




(9) [LO 2] One common argument for imposing so-
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called sin taxes is the social goal of reducing demand for such products. Using cigaret
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tes as an example, is there a segment of the population that might be sensitive to price
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and for whom high taxes might discourage purchases?
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The most obvious segment sensitive to price may be teenagers and younger adults that t
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ypically have less disposable income, although price sensitivity or elasticity will vary
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by taxpayer.
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(10) [LO 3] Dontae stated that he didn’t want to earn any more money because it woul
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d ―put him in a higher tax bracket.‖ What is wrong with Dontae’s reasoning?
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Although earning additional taxable income may increase Dontae‘s marginal tax rate
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(i.e., put him in a higher tax bracket), the additional income earned does not affect the t
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axes that Dontae will pay on his existing income. Moving to a higher tax bracket simply
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means that Dontae will pay a higher tax rate on the additional income earned (not on th
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e income that he already has).
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(11) [LO 3] Describe the three different tax rates discussed in the chapter and how taxp
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ayers might use them. f f f




The marginal tax rate is the tax rate that applies to the taxpayer‘s additional
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taxable income or deductions that the taxpayer is evaluating in a decision. Specifically,
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ΔTax ΔTax 
Marginal Tax Rate  (NewTotalTax  OldTotalTax) (NewT
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ableIncome axableIncome OldTaxableIncome) f




The marginal tax rate is particularly useful in tax planning because it represents the rat
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e of taxation or savings that would apply to additional taxable income or tax deduction
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s.

The average tax rate represents the taxpayer‘s average level of taxation on each
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dollar of taxable income. Specifically, f f f f




TotalTax
Average Tax Rate = f f f


TaxableIncome

The average tax rate is often used in budgeting tax expense as a portion of income (i.e.,
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what percent of taxable income earned is paid in tax).
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The effective tax rate represents the taxpayer‘s average rate of taxation on each
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dollar of total income (i.e., taxable and nontaxable income). Specifically,
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