Solution Manual
McGraw-Hill's Taxation of Individuals Edition, 20th Edition by Spilker,
Ayers, All Chapters 1 - 14
,TABLE OF CONTENTS lz lz lz
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 lz
An Introduction to Tax
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Discussion Questions lz
(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 job
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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? Wha
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t 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? lz lz lz lz lz lz
• Where should the business locate? lz lz lz lz
• How should business acquisitions be structured? lz lz lz lz lz
• How should the business compensate employees? lz lz lz lz lz
• What is the appropriate mix of debt and equity for the business? lz lz lz lz lz lz lz lz lz lz lz
• Should the business rent or own its equipment and property? lz lz lz lz lz lz lz lz lz
• How should the business distribute profits to its owners? lz lz lz lz lz lz lz lz
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.lz
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 d
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iverse views of the appropriate way to tax the public. Determining who is taxed, what is
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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. lz lz lz lz lz
(4) [LO 2] Courtney recently received a speeding ticket on her way to the university. Her f
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ine 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 o
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r 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 enact
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ed 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-
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2, tolls, parking meter fees, and annual licensing fees are not considered taxes. Can y
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ou 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. lz lz
(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 cont
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ribution deduction is intended to encourage taxpayers to support the initiatives of cha
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ritable organizations, whereas deductions for retirement contributions are intended to
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encourage retirement savings. Another objective of the tax system is to redistribute w
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ealth.
McGraw-Hill's Taxation of Individuals Edition, 20th Edition by Spilker,
Ayers, All Chapters 1 - 14
,TABLE OF CONTENTS lz lz lz
Part I: Introduction to Taxation
lz lz lz lz
Chapter 1: An Introduction to Tax
lz lz lz lz lz
Chapter 2: Tax Compliance, the IRS, and Tax Authorities
lz lz lz lz lz lz lz lz
Chapter 3: Tax Planning Strategies and Related Limitations
lz lz lz lz lz lz lz
Part II: Basic Individual Taxation
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Chapter 4: Individual Income Tax Overview, Dependents, and Filing Status
lz lz lz lz lz lz lz lz lz
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 lz
An Introduction to Tax
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Discussion Questions lz
(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 job
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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? Wha
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t 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? lz lz lz lz lz lz
• Where should the business locate? lz lz lz lz
• How should business acquisitions be structured? lz lz lz lz lz
• How should the business compensate employees? lz lz lz lz lz
• What is the appropriate mix of debt and equity for the business? lz lz lz lz lz lz lz lz lz lz lz
• Should the business rent or own its equipment and property? lz lz lz lz lz lz lz lz lz
• How should the business distribute profits to its owners? lz lz lz lz lz lz lz lz
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.lz
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 d
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iverse views of the appropriate way to tax the public. Determining who is taxed, what is
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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. lz lz lz lz lz
(4) [LO 2] Courtney recently received a speeding ticket on her way to the university. Her f
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ine 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 o
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r 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 enact
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ed 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-
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2, tolls, parking meter fees, and annual licensing fees are not considered taxes. Can y
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ou 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. lz lz
(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 cont
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ribution deduction is intended to encourage taxpayers to support the initiatives of cha
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ritable organizations, whereas deductions for retirement contributions are intended to
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encourage retirement savings. Another objective of the tax system is to redistribute w
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ealth.
