Test Bank for Fundamentals of Taxation for Individuals 2024, 1st Edition by Gregory A. Carnes

,TEST BANK FOR Fundamentals of Taxation for
Individuals A Practical Approach, Gregory A. Carnes,
Suzanne Youngberg
Chapterf1-18

Chapter 1 f The Professional Practice of Taxation
f f f f




1)fWhichfofftheffollowingfisffalsefaboutftaxfplanning?
Thefappropriatefgoalfforftaxfplanningfisftofmaximizefafter-taxfincome.
Thefappropriatefgoalfforftaxfplanningfisftofminimizefaftaxpayer'sftaxfliabilityfforfthefyear.
Oncefaftaxpayerfunderstandsftheftaxfconsequencesfoffafparticularftransaction,ftheyfcanfmovefonft
oftheftaxfplanningfstage.
Taxfevasionfisfnotfaftaxfplanningfstrategy.
Answer:ffB
Explanation:fMinimizingfaftaxpayer'sfliabilityfisfnotfthefappropriatefgoalfforftaxfplanningfbecausefiff
thatfwerefthefgoal,fthenfthefultimatefsuccessfwouldfbeftofreducefaftaxpayer'sftaxfliabilityftofzero–
actuallyfanfeasyfgoalftofmeet.fIffaftaxpayerfhasfnofincomefforfthefyear,fthenftherefwouldfbefnoftaxfliab
ility,fandfyoufwillfhavefminimizedftheirftaxes.fButfyourfclientfwillfalsofbefafveryfpoorfandfhungryfper
son,fsofthisfcannotfbefthefproperfgoal.fDiff:f1

LearningfObjective: LOf1.1
AACSBf/fAICPA:ffKnowledgef/fAccountingfCompetencies
Bloom's:ffKnowledge
SectionfReference:ffSec.f1.1
TimefonfTask:ff5fmin


Jessicafhasfreceivedfseveralfjobfoffersffromfvariousfaccountingffirmsflocatedfinf4fdifferentfstates.f
Shefhasfperformedfanfanalysisftofdeterminefherfincome,fherfnon-
incomeftaxfcostsf(e.g.fcostfoffliving,fetc.)fandfincomeftax.fJessicafisftryingftofmakefafdecisionfonfwhic
hfofferftofaccept,fandfshefhasfaskedfforfyourfadvice.fBasedfonfthefappropriatefgoalfofftaxfplanning,fw
hichfofftheffollowingfstatesfwouldfyoufadvisefJessicaftofchoose?

GrossfWages Non-IncomefTaxfCosts IncomefTax
California 120,000 52,000 24,000
NewfYork 100,000 37,000 20,000
Virginia 70,000 10,800 10,500
Texas 50,000 6,000 5,000

Texas
California
Virginia
NewfYorkf
Answer:fC
Explanation:fThefappropriatefgoalfforftaxfplanningfisftofmaximizefafter-taxfincome.fAfter-
taxfincomefisfnetfincomefafterfreducingfrevenuefforfallfexpenses,fincludingffederalfincomeftaxes.fSeeftabl
efbelowfforfcalculationfoffafter-taxfincomefforfeachfstate.fWithfthatfinfmind,fyoufshouldfadvise

1

,JessicaftofchoosefVirginiafbecausefdoingfsofmaximizesfherfafter-
taxfincome.fThefstatefwithftheflowestfincomeftaxf(i.e.,fTexas)fisfnotfthefrightfanswerfbecausefminimizingf
aftaxpayer'sfliabilityfisfnotfthefappropriatefgoalfforftaxfplanningfbecausefiffthatfwerefthefgoal,fthenfthefulti
matefsuccessfwouldfbeftofreducefaftaxpayer'sftaxfliabilityftofzero–
anfeasyfgoalftofmeet.fIffaftaxpayerfhasfnofincomefforfthefyear,fthenftherefwouldfbefnoftaxfliability,fandfyou
fwillfhave fminimizedftheirftaxes.fButfyourfclientfwillfalsofbefa fveryfpoorfandfhungryfperson,fsofthisfcanno

tfbefthefproperfgoal.

Gross Non-Income After-Tax
Wages TaxfCosts IncomefTax Income
(A) (B) (C) (D)f=f(A)f-f(B)f-f(C)
California 20,000 52,000 24,000 44,000
NewfYork 100,000 37,000 20,000 43,000
Virginia 70,000 10,800 10,500 48,700
Texas 50,000 6,000 5,000 39,000

Diff:f2
LearningfObjective: LOf1.1
AACSBf/fAICPA:ffAnalyticf/fAccountingfCompetencies
Bloom's:ffApplication
SectionfReference:ffSec.f1.1
TimefonfTask:ff8fmin

3)fWhichfofftheffollowingfisfnotfcorrectfregardingftaxfandfnon-taxfcosts?
Bothftaxfandfnon-
taxfcostsfmustfbefconsideredfwhenfmakingffinancialfandfinvestmentfdecisions.
Taxfcostsfincludefanyftypefofftaxfpaidftofaflocal,fstate,ffederal,forfforeignfgovernment.
Non-taxfcostsfarefallfcostsfotherfthanftaxfcosts.
Effectiveftaxfplanningfrequiresfprioritizingftaxfcosts.
Answer:ffD
Explanation:ffEffectiveftaxfplanningfrequiresfconsiderationfoffbothftaxfandfnon-taxfcosts.
Diff:f1
LearningfObjective: LOf1.1
AACSBf/fAICPA:ffKnowledgef/fAccountingfCompetencies
Bloom's:ffKnowledge
SectionfReference:ffSec.f1.1
TimefonfTask:ff5fmin

Samson'sfwagesfaref$100,000.fHeflivesfinfMarylandfandfhisfexpensesfincludef$25,000frent,f$12
,000fotherflivingfexpenses,f$27,000fincomeftax,f$6,200fpayrollftaxfandf$5,500fpropertyftax.fWhatf
arefSamson'sftaxfcosts?
A)f$27,000f
B)f$33,200f
C)f$61,300f
D)f$38,700f
Answer:fD
Explanation:f$38,700f=f$27,000f+f$6,200f+f$5,500.fTaxfcostsfincludefanyftypefofftaxfpaidftofaflocal
,fstate,ffederal,forfforeignfgovernment.
Diff:f1
2

, LearningfObjective: LOf1.1
AACSBf/fAICPA:ffAnalyticf/fAccountingfCompetencies
Bloom's:ffApplication
SectionfReference:ffSec.f1.1
TimefonfTask:ff5fmin

Samson'sfwagesfaref$100,000.fHeflivesfinfMarylandfandfhisfexpensesfincludef$25,000fmortg
agefinterest,f$12,000fotherflivingfexpenses,f$27,000fincomeftax,f$6,200fpayrollftaxfandf$5,500fp
ropertyftax.fWhatfisfSamson'sfnon-taxfcosts?
A)f$37,000f
B)f$12,000f
C)f$61,300f
D)f$38,700f
Answer:fA
Explanation:f$37,000f=f$25,000f+f$12,000.fNon-
taxfcostsfarefallfcostsfotherfthanftaxfcosts.fTaxfcostsfincludefanyftypefofftaxfpaidftofaflocal,fstate,ffede
ral,forfforeignfgovernment.
Diff:f1
LearningfObjective:ffLOf1.1
AACSBf/fAICPA:ffAnalyticf/fAccountingfCompetencies
Bloom's:ffApplication
SectionfReference:ffSec.f1.1
TimefonfTask:ff5fmin
Samson'sfwagesfaref$100,000.fHeflivesfinfMarylandfandfhisfnon-
taxfcostsfincludef$25,000frentfandf$12,000fotherflivingfexpenses.fHisftaxfcostsfincludef$27,000finco
meftax,f$6,200fpayrollftaxfandf$5,500fpropertyftax.fWhatfisfSamson'sfafter-taxfincome?
A)f$73,000f
B)f$24,300f
C)f$61,300f
D)f$29,000f
Answer:fB
Explanation:f$24,300f=f$100,000f-f$25,000f-f$12,000f-f$27,000f-f$6,200f-f$5,500.fAfter-
taxfincomefisfnetfincomefafterfreducingfrevenuefforfallfexpenses,fincludingffederalfincomeftaxes.f
Diff:f2
LearningfObjective:ffLOf1.1
AACSBf/fAICPA:ffAnalyticf/fAccountingfCompetencies
Bloom's:ffApplication
SectionfReference:ffSec.f1.1
TimefonfTask:ff8fmin

Whichfofftheffollowingfstatementsfisffalse?
IndividualsffileftheirfindividualfincomeftaxesfonfFormf1040.
IncomeflinesfonfthefFormf1040farefLinef1f-f9
DeductionflinesfonfFormf1040farefLinef10,f12f-f13
DemographicfinformationfisfincludedfonfthefsecondfpagefoffthefFormf1040fA
nswer:fD
Explanation:ffTheftopfhalffoffpagef1foffFormf1040fisfforfdemographicfinformation.
Diff:f1
LearningfObjective:ffLOf1.2
3