Solution Manual for McGraw-Hill's Taxation of
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Individuals 2024 Edition, 15th Edition
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By Brian Spilker, Benjamin Ayers, All Chapters 1 - 14
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,TABLE OF CONTENTS v v v
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
v v v v v v v v
Chapter 3: Tax Planning Strategies and Related Limitations
v v v v v v v
Part II: Basic Individual Taxation
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Chapter 4: Individual Income Tax Overview, Dependents, and Filing Status
v v v v v v v v v
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 v
An Introduction to Tax
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Discussion Questions
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(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?
v v v v v v v v v v v v
Taxes are a part of everyday life and have a financial effect on many of the major personal decisions that
v v v v v v v v v v v v v v v v v v v
individuals face (e.g., investment decisions, evaluating alternative job offers, saving for education
v v v v v v v v v v v v
expenses, gift or estate planning, etc.).
v v v v v v
(2) [LO 1] What are some aspects of business that require knowledge of taxation? What are
v v v v v v v v v v v v v v
some aspects of personal finance that require knowledge of taxation?
v v v v v v v v v v
Taxes play an important role in fundamental business decisions such as the following:
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What organizational form should a business use? v v v v v v
Where should the business locate? v v v v
How should business acquisitions be structured? v v v v v
How should the business compensate employees? v v v v v
What is the appropriate mix of debt and equity for the business? v v v v v v v v v v v
Should the business rent or own its equipment and property? v v v v v v v v v
How should the business distribute profits to its owners? v v v v v v v v
One must consider all transaction costs (including taxes) to evaluate the merits of a transaction.
v v v v v v v v v v v v v v
Common personal financial decisions that taxes influence include: choosing investments, retirement
v v v v v v v v v v
planning, choosing to rent or buy a home, evaluating alternative job offers, saving for education expenses,
v v v v v v v v v v v v v v v v
and doing gift or estate planning.
v v v v v v
(3) [LO 1] Describe some ways in which taxes affect the political process in the United
v v v v v v v v v v v v v v
States.
v
U.S. presidential candidates often distinguish themselves from their opponents
v v v v v v v v
, based upon their tax rhetoric. Likewise, the major political parties generally have very diverse views of the
v v v v v v v v v v v v v v v v
appropriate way to tax the public. Determining who is taxed, what is taxed, and how much is taxed are
v v v v v v v v v v v v v v v v v v v
difficult questions. Voters must have a basic understanding of taxes to evaluate the merits of alternative tax
v v v v v v v v v v v v v v v v v
vproposals offered by opposing political candidates and their political parties.
v v v v v v v v v
(4) [LO 2] Courtney recently received a speeding ticket on her way to the university. Her fine was
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$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 penalty. Taxes differ
v v v v v v v v v v v v v v v v v v
from fines and penalties because taxes are not intended to punish or prevent illegal behavior.
v v v v v v v v v v v v v v v
(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 or why
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not?
v
The building permit is not considered a tax because $300 payment is directly linked to a benefit that they
v v v v v v v v v v v v v v v v v v
received (i.e., the ability to build a house).
v v v v v v v v
(6) [LO 2] To help pay for the city’s new stadium, the city of Birmingham recently enacted a 1
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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 – i.e., collected for a specific
v v v v v v v v v v v v v v v v v v v v
purpose. The surcharge is considered a tax because the tax payments made by taxpayers do not directly relate
v v v v v v v v v v v v v v v v v v
to the specific benefit received by the taxpayers.
v v v v v v v v
(7) [LO 2] As noted in Example 1-2, tolls, parking meter fees, and annual licensing fees are not
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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 entrance fees to
v v v v v v v v v v v v v v
national parks, tag fees paid to local/state government for automobiles, boats, etc.
v v v v v v v v v v v v
(8) [LO 2] If the general objective of our tax system is to raise revenue, why does the income tax
v v v v v v v v v v v v v v v v v v
allow deductions for charitable contributions and retirement plan contributions?
v v v v v v v v v
In addition to the general objective of raising revenue, Congress uses the federal tax system to encourage
v v v v v v v v v v v v v v v v
certain behavior and discourage other behavior. The charitable contribution deduction is intended to
v v v v v v v v v v v v v
encourage taxpayers to support the initiatives of charitable organizations, whereas deductions for
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retirement contributions are intended to encourage retirement savings. Another objective of the tax
v v v v v v v v v v v v v
system is to redistribute wealth.
v v v v v
v v v v v
Individuals 2024 Edition, 15th Edition
v v v v v
By Brian Spilker, Benjamin Ayers, All Chapters 1 - 14
v v v v v v v v v
,TABLE OF CONTENTS v v v
Part I: Introduction to Taxation
v v v v
Chapter 1: An Introduction to Tax
v v v v v
Chapter 2: Tax Compliance, the IRS, and Tax Authorities
v v v v v v v v
Chapter 3: Tax Planning Strategies and Related Limitations
v v v v v v v
Part II: Basic Individual Taxation
v v v v
Chapter 4: Individual Income Tax Overview, Dependents, and Filing Status
v v v v v v v v v
Chapter 5: Gross Income and Exclusions
v v v v v
Chapter 6: Individual Deductions
v v v
Chapter 7: Investments
v v
Chapter 8: Individual Income Tax Computation and Tax Credits
v v v v v v v v
Part III: Business-Related Transactions
v v v
Chapter 9: Business Income, Deductions, and Accounting Methods
v v v v v v v
Chapter 10: Property Acquisition and Cost Recovery
v v v v v v
Chapter 11: Property Dispositions
v v v
Part IV: Specialized Topics
v v v
Chapter 12: Compensation
v v
Chapter 13: Retirement Savings and Deferred Compensation
v v v v v v
Chapter 14: Tax Consequences of Home Ownership
v v v v v v
,Chapter 1 v
An Introduction to Tax
v v v
Discussion Questions
v
(1) [LO 1] Jessica’s friend Zachary once stated that he couldn’t understand why
v v v v v v v v v v v
someone would take a tax course. Why is this a rather naïve view?
v v v v v v v v v v v v
Taxes are a part of everyday life and have a financial effect on many of the major personal decisions that
v v v v v v v v v v v v v v v v v v v
individuals face (e.g., investment decisions, evaluating alternative job offers, saving for education
v v v v v v v v v v v v
expenses, gift or estate planning, etc.).
v v v v v v
(2) [LO 1] What are some aspects of business that require knowledge of taxation? What are
v v v v v v v v v v v v v v
some aspects of personal finance that require knowledge of taxation?
v v v v v v v v v v
Taxes play an important role in fundamental business decisions such as the following:
v v v v v v v v v v v v
What organizational form should a business use? v v v v v v
Where should the business locate? v v v v
How should business acquisitions be structured? v v v v v
How should the business compensate employees? v v v v v
What is the appropriate mix of debt and equity for the business? v v v v v v v v v v v
Should the business rent or own its equipment and property? v v v v v v v v v
How should the business distribute profits to its owners? v v v v v v v v
One must consider all transaction costs (including taxes) to evaluate the merits of a transaction.
v v v v v v v v v v v v v v
Common personal financial decisions that taxes influence include: choosing investments, retirement
v v v v v v v v v v
planning, choosing to rent or buy a home, evaluating alternative job offers, saving for education expenses,
v v v v v v v v v v v v v v v v
and doing gift or estate planning.
v v v v v v
(3) [LO 1] Describe some ways in which taxes affect the political process in the United
v v v v v v v v v v v v v v
States.
v
U.S. presidential candidates often distinguish themselves from their opponents
v v v v v v v v
, based upon their tax rhetoric. Likewise, the major political parties generally have very diverse views of the
v v v v v v v v v v v v v v v v
appropriate way to tax the public. Determining who is taxed, what is taxed, and how much is taxed are
v v v v v v v v v v v v v v v v v v v
difficult questions. Voters must have a basic understanding of taxes to evaluate the merits of alternative tax
v v v v v v v v v v v v v v v v v
vproposals offered by opposing political candidates and their political parties.
v v v v v v v v v
(4) [LO 2] Courtney recently received a speeding ticket on her way to the university. Her fine was
v v v v v v v v v v v v v v v v
$200. Is this considered a tax? Why or why not?
v v v v v v v v v v
The $200 speeding ticket is not considered a tax. Instead, it is considered a fine or penalty. Taxes differ
v v v v v v v v v v v v v v v v v v
from fines and penalties because taxes are not intended to punish or prevent illegal behavior.
v v v v v v v v v v v v v v v
(5) [LO 2] Marlon and Latoya recently started building a house. They had to pay
v v v v v v v v v v v v v
$300 to the county government for a building permit. Is the $300 payment a tax? Why or why
v v v v v v v v v v v v v v v v v
not?
v
The building permit is not considered a tax because $300 payment is directly linked to a benefit that they
v v v v v v v v v v v v v v v v v v
received (i.e., the ability to build a house).
v v v v v v v v
(6) [LO 2] To help pay for the city’s new stadium, the city of Birmingham recently enacted a 1
v v v v v v v v v v v v v v v v v
percent surcharge on hotel rooms. Is this a tax? Why or why not?
v v v v v v v v v v v v v
The 1 percent surcharge is a tax. The 1 percent surcharge is an earmarked tax – i.e., collected for a specific
v v v v v v v v v v v v v v v v v v v v
purpose. The surcharge is considered a tax because the tax payments made by taxpayers do not directly relate
v v v v v v v v v v v v v v v v v v
to the specific benefit received by the taxpayers.
v v v v v v v v
(7) [LO 2] As noted in Example 1-2, tolls, parking meter fees, and annual licensing fees are not
v v v v v v v v v v v v v v v v
considered taxes. Can you identify other fees that are similar?
v v v v v v v v v v
There are several possible answers to this question. Some common examples include entrance fees to
v v v v v v v v v v v v v v
national parks, tag fees paid to local/state government for automobiles, boats, etc.
v v v v v v v v v v v v
(8) [LO 2] If the general objective of our tax system is to raise revenue, why does the income tax
v v v v v v v v v v v v v v v v v v
allow deductions for charitable contributions and retirement plan contributions?
v v v v v v v v v
In addition to the general objective of raising revenue, Congress uses the federal tax system to encourage
v v v v v v v v v v v v v v v v
certain behavior and discourage other behavior. The charitable contribution deduction is intended to
v v v v v v v v v v v v v
encourage taxpayers to support the initiatives of charitable organizations, whereas deductions for
v v v v v v v v v v v v
retirement contributions are intended to encourage retirement savings. Another objective of the tax
v v v v v v v v v v v v v
system is to redistribute wealth.
v v v v v
