Solution Manual for McGraw-Hill's Taxation of
t t t t t
Individuals 2024 Edition, 15th Edition
t t t t t
By Brian Spilker, Benjamin Ayers, All Chapters 1 - 14
t t t t t t t t t
,TABLE OF CONTENTS
t t t
Part tI: tIntroduction tto tTaxation
Chapter t1: tAn tIntroduction tto tTax
Chapter t2: tTax tCompliance, tthe tIRS, tand tTax tAuthorities
Chapter t3: tTax tPlanning tStrategies tand tRelated tLimitations
Part tII: tBasic tIndividual tTaxation
Chapter t4: tIndividual tIncome tTax tOverview, tDependents, tand tFiling tStatus
Chapter t5: tGross tIncome tand tExclusions
Chapter t6: tIndividual tDeductions
Chapter t7: tInvestments
Chapter t8: tIndividual tIncome tTax tComputation tand tTax tCredits
Part tIII: tBusiness-Related tTransactions
Chapter t9: tBusiness tIncome, tDeductions, tand tAccounting tMethods
Chapter t10: tProperty tAcquisition tand tCost tRecovery
Chapter t11: tProperty tDispositions
Part tIV: tSpecialized tTopics
Chapter t12: tCompensation
Chapter t13: tRetirement tSavings tand tDeferred tCompensation
Chapter t14: tTax tConsequences tof tHome tOwnership
,Chapter 1t
An Introduction to Tax
t t t
Discussion Questions
t
(1) [LO t1] tJessica’s tfriend tZachary tonce tstated tthat the tcouldn’t tunderstand twhy
someone twould ttake ta ttax tcourse. tWhy tis tthis ta trather tnaïve tview?
Taxes tare ta tpart tof teveryday tlife tand thave ta tfinancial teffect ton tmany tof tthe tmajor t personal
tdecisions tthat tindividuals tface t(e.g., tinvestment tdecisions, tevaluating t alternative tjob toffers, tsaving
tfor teducation texpenses, tgift tor testate tplanning, tetc.).
(2) [LO t1] tWhat tare tsome taspects tof tbusiness tthat trequire tknowledge tof ttaxation?
t What tare tsome taspects tof tpersonal tfinance tthat trequire tknowledge tof ttaxation?
Taxes tplay tan timportant trole tin tfundamental tbusiness tdecisions tsuch tas tthe t following:
• What torganizational tform tshould ta tbusiness tuse?
• Where tshould tthe tbusiness tlocate?
• How tshould tbusiness tacquisitions tbe tstructured?
• How tshould tthe tbusiness tcompensate temployees?
• What tis tthe tappropriate tmix tof tdebt tand tequity tfor tthe tbusiness?
• Should tthe tbusiness trent tor town tits tequipment tand tproperty?
• How tshould tthe tbusiness tdistribute tprofits tto tits towners?
One tmust tconsider tall ttransaction tcosts t(including ttaxes) tto tevaluate tthe tmerits tof t a ttransaction.
Common tpersonal tfinancial tdecisions tthat ttaxes tinfluence tinclude: tchoosing t investments,
tretirement tplanning, tchoosing tto trent tor tbuy ta thome, tevaluating t alternative tjob toffers, tsaving tfor
teducation texpenses, tand tdoing tgift tor testate t planning.
(3) [LO t1] tDescribe tsome tways tin twhich ttaxes taffect tthe tpolitical tprocess tin tthe
t United tStates.
U.S. tpresidential tcandidates toften tdistinguish tthemselves tfrom ttheir topponents
, based tupon ttheir ttax trhetoric. tLikewise, tthe tmajor tpolitical tparties tgenerally thave t very tdiverse
tviews tof tthe tappropriate tway tto ttax tthe tpublic. tDetermining twho tis t taxed, twhat tis ttaxed, tand
thow tmuch tis ttaxed tare tdifficult tquestions. tVoters tmust t have ta tbasic tunderstanding tof ttaxes tto
tevaluate tthe tmerits tof talternative ttax t proposals toffered tby topposing tpolitical tcandidates tand ttheir
tpolitical tparties.
(4) [LO t2] tCourtney trecently treceived ta tspeeding tticket ton ther tway tto tthe tuniversity.
t Her tfine twas t$200. tIs tthis tconsidered ta ttax? tWhy tor twhy tnot?
The t$200 tspeeding tticket tis tnot tconsidered ta ttax. tInstead, tit tis tconsidered ta tfine t or tpenalty.
tTaxes tdiffer tfrom tfines tand tpenalties tbecause ttaxes tare tnot tintended t to tpunish tor tprevent
tillegal tbehavior.
(5) [LO t2] tMarlon tand tLatoya trecently tstarted tbuilding ta thouse. tThey thad tto tpay
$300 tto tthe tcounty tgovernment tfor ta tbuilding tpermit. tIs tthe t$300 tpayment ta ttax?
t Why tor twhy tnot?
The tbuilding tpermit tis tnot tconsidered ta ttax tbecause t$300 tpayment tis tdirectly t linked tto ta tbenefit
tthat tthey treceived t(i.e., tthe tability tto tbuild ta thouse).
(6) [LO t2] tTo thelp tpay tfor tthe tcity’s tnew tstadium, tthe tcity tof tBirmingham trecently
t enacted ta t1 tpercent tsurcharge ton thotel trooms. tIs tthis ta ttax? tWhy tor twhy tnot?
The t1 tpercent tsurcharge tis ta ttax. tThe t1 tpercent tsurcharge tis tan tearmarked ttax t– t i.e., tcollected
tfor ta tspecific tpurpose. tThe tsurcharge tis tconsidered ta ttax tbecause t the ttax tpayments tmade tby
ttaxpayers tdo tnot tdirectly trelate tto tthe tspecific tbenefit t received tby tthe ttaxpayers.
(7) [LO t2] tAs tnoted tin tExample t1-2, ttolls, tparking tmeter tfees, tand tannual tlicensing t fees
tare tnot tconsidered ttaxes. tCan tyou tidentify tother tfees tthat tare tsimilar?
There tare tseveral tpossible tanswers tto tthis tquestion. tSome tcommon texamples t include tentrance tfees
tto tnational tparks, ttag tfees tpaid tto tlocal/state tgovernment t for tautomobiles, tboats, tetc.
(8) [LO t2] tIf tthe tgeneral tobjective tof tour ttax tsystem tis tto traise trevenue, twhy tdoes tthe
t income ttax tallow tdeductions tfor tcharitable tcontributions tand tretirement tplan
t contributions?
In taddition tto tthe tgeneral tobjective tof traising trevenue, tCongress tuses tthe tfederal t tax tsystem tto
tencourage tcertain tbehavior tand tdiscourage tother tbehavior. tThe t charitable tcontribution tdeduction
tis tintended tto tencourage ttaxpayers tto tsupport t the tinitiatives tof tcharitable torganizations, twhereas
tdeductions tfor tretirement t contributions tare tintended tto tencourage tretirement tsavings. tAnother
tobjective tof t the ttax tsystem tis tto tredistribute twealth.
t t t t t
Individuals 2024 Edition, 15th Edition
t t t t t
By Brian Spilker, Benjamin Ayers, All Chapters 1 - 14
t t t t t t t t t
,TABLE OF CONTENTS
t t t
Part tI: tIntroduction tto tTaxation
Chapter t1: tAn tIntroduction tto tTax
Chapter t2: tTax tCompliance, tthe tIRS, tand tTax tAuthorities
Chapter t3: tTax tPlanning tStrategies tand tRelated tLimitations
Part tII: tBasic tIndividual tTaxation
Chapter t4: tIndividual tIncome tTax tOverview, tDependents, tand tFiling tStatus
Chapter t5: tGross tIncome tand tExclusions
Chapter t6: tIndividual tDeductions
Chapter t7: tInvestments
Chapter t8: tIndividual tIncome tTax tComputation tand tTax tCredits
Part tIII: tBusiness-Related tTransactions
Chapter t9: tBusiness tIncome, tDeductions, tand tAccounting tMethods
Chapter t10: tProperty tAcquisition tand tCost tRecovery
Chapter t11: tProperty tDispositions
Part tIV: tSpecialized tTopics
Chapter t12: tCompensation
Chapter t13: tRetirement tSavings tand tDeferred tCompensation
Chapter t14: tTax tConsequences tof tHome tOwnership
,Chapter 1t
An Introduction to Tax
t t t
Discussion Questions
t
(1) [LO t1] tJessica’s tfriend tZachary tonce tstated tthat the tcouldn’t tunderstand twhy
someone twould ttake ta ttax tcourse. tWhy tis tthis ta trather tnaïve tview?
Taxes tare ta tpart tof teveryday tlife tand thave ta tfinancial teffect ton tmany tof tthe tmajor t personal
tdecisions tthat tindividuals tface t(e.g., tinvestment tdecisions, tevaluating t alternative tjob toffers, tsaving
tfor teducation texpenses, tgift tor testate tplanning, tetc.).
(2) [LO t1] tWhat tare tsome taspects tof tbusiness tthat trequire tknowledge tof ttaxation?
t What tare tsome taspects tof tpersonal tfinance tthat trequire tknowledge tof ttaxation?
Taxes tplay tan timportant trole tin tfundamental tbusiness tdecisions tsuch tas tthe t following:
• What torganizational tform tshould ta tbusiness tuse?
• Where tshould tthe tbusiness tlocate?
• How tshould tbusiness tacquisitions tbe tstructured?
• How tshould tthe tbusiness tcompensate temployees?
• What tis tthe tappropriate tmix tof tdebt tand tequity tfor tthe tbusiness?
• Should tthe tbusiness trent tor town tits tequipment tand tproperty?
• How tshould tthe tbusiness tdistribute tprofits tto tits towners?
One tmust tconsider tall ttransaction tcosts t(including ttaxes) tto tevaluate tthe tmerits tof t a ttransaction.
Common tpersonal tfinancial tdecisions tthat ttaxes tinfluence tinclude: tchoosing t investments,
tretirement tplanning, tchoosing tto trent tor tbuy ta thome, tevaluating t alternative tjob toffers, tsaving tfor
teducation texpenses, tand tdoing tgift tor testate t planning.
(3) [LO t1] tDescribe tsome tways tin twhich ttaxes taffect tthe tpolitical tprocess tin tthe
t United tStates.
U.S. tpresidential tcandidates toften tdistinguish tthemselves tfrom ttheir topponents
, based tupon ttheir ttax trhetoric. tLikewise, tthe tmajor tpolitical tparties tgenerally thave t very tdiverse
tviews tof tthe tappropriate tway tto ttax tthe tpublic. tDetermining twho tis t taxed, twhat tis ttaxed, tand
thow tmuch tis ttaxed tare tdifficult tquestions. tVoters tmust t have ta tbasic tunderstanding tof ttaxes tto
tevaluate tthe tmerits tof talternative ttax t proposals toffered tby topposing tpolitical tcandidates tand ttheir
tpolitical tparties.
(4) [LO t2] tCourtney trecently treceived ta tspeeding tticket ton ther tway tto tthe tuniversity.
t Her tfine twas t$200. tIs tthis tconsidered ta ttax? tWhy tor twhy tnot?
The t$200 tspeeding tticket tis tnot tconsidered ta ttax. tInstead, tit tis tconsidered ta tfine t or tpenalty.
tTaxes tdiffer tfrom tfines tand tpenalties tbecause ttaxes tare tnot tintended t to tpunish tor tprevent
tillegal tbehavior.
(5) [LO t2] tMarlon tand tLatoya trecently tstarted tbuilding ta thouse. tThey thad tto tpay
$300 tto tthe tcounty tgovernment tfor ta tbuilding tpermit. tIs tthe t$300 tpayment ta ttax?
t Why tor twhy tnot?
The tbuilding tpermit tis tnot tconsidered ta ttax tbecause t$300 tpayment tis tdirectly t linked tto ta tbenefit
tthat tthey treceived t(i.e., tthe tability tto tbuild ta thouse).
(6) [LO t2] tTo thelp tpay tfor tthe tcity’s tnew tstadium, tthe tcity tof tBirmingham trecently
t enacted ta t1 tpercent tsurcharge ton thotel trooms. tIs tthis ta ttax? tWhy tor twhy tnot?
The t1 tpercent tsurcharge tis ta ttax. tThe t1 tpercent tsurcharge tis tan tearmarked ttax t– t i.e., tcollected
tfor ta tspecific tpurpose. tThe tsurcharge tis tconsidered ta ttax tbecause t the ttax tpayments tmade tby
ttaxpayers tdo tnot tdirectly trelate tto tthe tspecific tbenefit t received tby tthe ttaxpayers.
(7) [LO t2] tAs tnoted tin tExample t1-2, ttolls, tparking tmeter tfees, tand tannual tlicensing t fees
tare tnot tconsidered ttaxes. tCan tyou tidentify tother tfees tthat tare tsimilar?
There tare tseveral tpossible tanswers tto tthis tquestion. tSome tcommon texamples t include tentrance tfees
tto tnational tparks, ttag tfees tpaid tto tlocal/state tgovernment t for tautomobiles, tboats, tetc.
(8) [LO t2] tIf tthe tgeneral tobjective tof tour ttax tsystem tis tto traise trevenue, twhy tdoes tthe
t income ttax tallow tdeductions tfor tcharitable tcontributions tand tretirement tplan
t contributions?
In taddition tto tthe tgeneral tobjective tof traising trevenue, tCongress tuses tthe tfederal t tax tsystem tto
tencourage tcertain tbehavior tand tdiscourage tother tbehavior. tThe t charitable tcontribution tdeduction
tis tintended tto tencourage ttaxpayers tto tsupport t the tinitiatives tof tcharitable torganizations, twhereas
tdeductions tfor tretirement t contributions tare tintended tto tencourage tretirement tsavings. tAnother
tobjective tof t the ttax tsystem tis tto tredistribute twealth.
