Solution Manual
McGraw-Hill's Taxation of Individuals 2024 Edition,
15th Edition by Spilker, Ayers, All Chapters 1 - 14
,TABLE OF CONTENTS jh jh jh
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
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An Introduction to Tax
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Discussion Questions jh
(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 perso
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nal decisions that individuals face (e.g., investment decisions, evaluating alternative jo
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b 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? Wh
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at 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? jh jh jh jh jh jh
Where should the business locate? jh jh jh jh
How should business acquisitions be structured? jh jh jh jh jh
How should the business compensate employees? jh jh jh jh jh
What is the appropriate mix of debt and equity for the business? jh jh jh jh jh jh jh jh jh jh jh
Should the business rent or own its equipment and property? jh jh jh jh jh jh jh jh jh
How should the business distribute profits to its owners? jh jh jh jh jh jh jh jh
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 investm
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ents, retirement planning, choosing to rent or buy a home, evaluating alternative job o
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ffers, 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 Uni
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ted States.
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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
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diverse views of the appropriate way to tax the public. Determining who is taxed, wha
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t is taxed, and how much is taxed are difficult questions. Voters must have a basic und
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erstanding of taxes to evaluate the merits of alternative tax proposals offered by oppo
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sing political candidates and their political parties.
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(4) [LO 2] Courtney recently received a speeding ticket on her way to the university. 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 p
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enalty. Taxes differ from fines and penalties because taxes are not intended to punis
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h 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
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or why not? jh jh
The building permit is not considered a tax because $300 payment is directly linked to
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a 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 enac
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ted 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 ta
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x payments made by taxpayers do not directly relate to the specific benefit received by
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the taxpayers. jh
(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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hentrance fees to national parks, tag fees paid to local/state government for automobi
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les, boats, etc. jh jh
(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 con
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tribution deduction is intended to encourage taxpayers to support the initiatives of ch
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aritable organizations, whereas deductions for retirement contributions are intended
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to encourage retirement savings. Another objective of the tax system is to redistribute
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wealth.
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