Solution Manual for McGraw-Hill’s Taxation of Individuals 2024 Edition, 15th Edition by Brian C. Spilker, Benjamin C. Ayers & John A. Barrick – Complete Chapter Solutions Guide

Solution Manual For:
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Mcgraw-Hill’s TaxationOf Individuals 2024 Edition, 15th
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Edition By Brian C. Spilker, BenjaminC. Ayers & John A.
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Barrick – Complete Chapter Solutions Guide
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1

,Chapter1 b




AnIntroductiontoTax
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DiscussionQuestions b




(1) [LO1] Jessica’sfriendZacharyoncestated thathecouldn’tunderstandwhy
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someone would take a tax course. Why is this a rather naïve view?
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Taxesare a part of everyday life andhavea financial effect onmany ofthe major personal
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decisions that individuals face (e.g., investment decisions, evaluating alternativejob
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offers,savingforeducationexpenses,giftorestateplanning,etc.).
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(2) [LO 1] What are someaspects of business thatrequire knowledge oftaxation? What
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aresomeaspectsofpersonalfinancethatrequireknowledgeoftaxation?
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Taxesplayanimportantroleinfundamentalbusinessdecisionssuch asthe following:
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• Whatorganizational form should abusiness use? b b b b b b




• Where shouldthe business locate? b b b b




• How should business acquisitions be structured? b b b b b




• Howshould the business compensateemployees? b b b b b




• Whatis the appropriate mix of debt and equity forthe business? b b b b b b b b b b b




• Shouldthe businessrent or own its equipmentandproperty? b b b b b b b b b




• How should the business distribute profitsto its owners? b b b b b b b b




Onemust consideralltransactioncosts (includingtaxes)toevaluatethemeritsof a
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transaction.
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Common personal financial decisions that taxes influenceinclude: choosing
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investments, retirementplanning,choosingtorentorbuyahome,evaluating
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alternativejob offers, savingforeducation expenses, anddoing giftorestate planning.
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(3) [LO1] Describesomewaysinwhich taxesaffect thepoliticalprocessinthe United
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States.
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U.S.presidentialcandidatesoften distinguishthemselvesfromtheiropponents
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, basedupon theirtax rhetoric.Likewise, themajorpoliticalparties generallyhave very
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diverse 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
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understanding of taxes to evaluate the merits of alternative tax proposals offered by
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opposing political candidates and their political parties.
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(4) [LO2] Courtneyrecentlyreceived aspeedingticketonherwaytotheuniversity. 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
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penalty. Taxes differ from fines and penalties because taxes are not intended to
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punish or prevent illegal behavior.
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(5) [LO 2] Marlon andLatoyarecentlystartedbuilding a house.Theyhad topay
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$300 to thecountygovernmentfora buildingpermit. Isthe $300payment a tax? Why or
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why not?
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Thebuildingpermit is notconsideredataxbecause$300paymentisdirectly 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] Tohelp payforthecity’snewstadium,thecityof Birmingham recently
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enacted a 1 percent surcharge on hotel rooms. Is this a tax? Why or why not?
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The1 percent surchargeisa tax. The1percentsurchargeisan earmarked tax – i.e.,
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collected for a specific purpose. The surcharge is considered a tax because the tax
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payments madeby taxpayers do not directly relate to the specific benefit received by the
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taxpayers.
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(7) [LO2] AsnotedinExample1-2,tolls,parkingmeterfees,and annuallicensing fees
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are not considered taxes. Can 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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entrancefeestonationalparks, tagfeespaidtolocal/stategovernment for
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automobiles, boats, etc.
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(8) [LO 2] Ifthe generalobjectiveof ourtax systemistoraiserevenue,whydoesthe income
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tax allow deductions for charitable contributions and retirement plan contributions?
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Inadditiontothegeneralobjectiveofraisingrevenue,Congressusesthefederal tax
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system to encourage certain behavior and discourage other behavior. The charitable
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contribution deduction isintended to encourage taxpayers to support the initiatives of
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charitable organizations, whereas deductions for retirement contributionsare
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intendedtoencourageretirement savings. Anotherobjectiveof the tax system is to
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redistribute wealth.
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, (9) [LO2] Onecommon argumentforimposingso-calledsin taxesisthesocialgoal of
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reducingdemand for suchproducts. Usingcigarettes as an example, istherea segment
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of the population that might be sensitive to price and for whom high taxes might
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discourage purchases?
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Themostobvioussegmentsensitivetopricemaybeteenagersand youngeradults that
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typically 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 moneybecause it would
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―put him in a higher tax bracket.‖ What is wrong with Dontae’s reasoning?
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Although earningadditionaltaxableincomemayincrease Dontae‘smarginal tax rate b b b b b b b b b b




(i.e., put himin ahigher tax bracket), the additional income earned does not affect the
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taxes that Dontae will pay on his existing income. Moving to a higher tax bracket simply
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meansthat Dontaewill paya highertaxrate onthe additional income earned (not on the
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income that he already has).
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(11) [LO3] Describethethreedifferenttaxratesdiscussed inthe chapterandhow
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taxpayers might use them.
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The marginal tax rate isthe taxrate thatapplies tothe taxpayer‘sadditional taxable
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income or deductions that the taxpayer is evaluating in a decision.
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Specifically,

ΔTax (NewTotalTax−OldTotalTax)
Marginal Tax Rate = =
ΔTaxableIncome (NewTaxableIncome − OldTaxableIncome)
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Themarginal tax rateisparticularly usefulin taxplanning becauseitrepresents the rate
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of taxation or savings that would apply toadditional taxable income or tax deductions.
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Theaveragetaxraterepresentsthe taxpayer‘saveragelevel oftaxation oneach dollar of
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taxable income. Specifically,
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TotalTax
AverageTaxRate = b b b




TaxableIncome

The averagetax rate is often usedin budgetingtaxexpense asaportion ofincome (i.e.,
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what percent of taxable income earned is paid in tax).
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Theeffectivetaxraterepresentsthetaxpayer‘saveragerateoftaxationoneach dollar of
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total income (i.e., taxable and nontaxable income). Specifically,
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4