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