1 © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicl y accessible website, in whole or in part. Solution Manual for South -Western Federal Taxation 2024 Individual Income Taxes 4 7th Edition by by James C. Young, Annette Nellen, Mark Persellin Chapter 1 -20 SOLUTION MANUAL FOR South -Western Federal Taxation 2024 Individual Income Taxes 47th Edition by James C. Young, Annette Nellen, Mark Persellin Chapter 1 -20 ISBN -13: 9780357900550 | ISBN -10: 0357900553 Table of Contents Part I: INTRODUCTION AND BASIC TAX MODEL. Solution Manual for Chapter 1. An Introduction to Taxation and Understanding the Federal Tax Law. Solution Manual for Chapter 2. Working with the Tax Law. Solution Manual for Chapter 3. Tax Formula and Tax Determination: An Overview of Property Transactions. Part II: GROSS INCOME. Solution Manual for Chapter 4. Gross Income: Concepts and Inclusions. Solution Manual for Chapter 5. Gross Income: Exclusions. Part III: DEDUCTIONS. Solution Manual for Chapter 6. Deductions and Losses: In General. Solution Manual for Chapter 7. Deductions and Losses: Certain Business Expenses and Losses. Solution Manual for Chapter 8. Depreciation, Cost Recovery, Amortization, and Depletion. Solution Manual for Chapter 9. Deductions: Employee and Self -Employed -Related Expenses. Solution Manual for Chapter 10. Deductions and Losses: Certain Itemized Deductions. Solution Manual for Chapter 11. Investor Losses. Part IV: SPECIAL TAX COMPUTATIONS METHODS, TAX CREDITS, AND PAYMENT PROCEDURES. Solution Manual for Chapter 12. Alternative Minimum Tax. Solution Manual for Chapter 13. Tax Credits and Payment Procedures. Part V: PROPERTY TRANSACTIONS. Solution Manual for Chapter 14. Property Transactions: Determination of Gain or Loss, and Basis Considerations. Solution Manual for Chapter 15. Property Transactions: Nontaxable Exchanges. Solution Manual for Chapter 16. Property Transactions: Capital Gains and Losses. Solution Manual for Chapter 17. Property Transactions: Section 1231, and Recapture Provisions. Part VI: ACCOUNTING PERIODS, ACCOUNTING METHODS, AND DEFERRED COMPENSATION. Solution Manual for Chapter 18. Accounting Periods and Methods. Solution Manual for Chapter 19. Deferred Compensation. Part VII: CORPORATIONS AND PARTNERSHIPS. Solution Manual for Chapter 20. Corporations and Partnerships. Appendix A: Tax Formulas, Tax Rate Schedules, and Tables. Appendix B: Tax Forms. Appendix C: Glossary. Appendix D: Table of Code Sections Cited. Appendix E: Present Value and Futur e Value Tables. Appendix F: Practice Set Assignments – Comprehensive Tax Return Problems. 2 © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicl y accessible website, in whole or in part. Solution Manual for South -Western Federal Taxation 2024 Individual Income Taxes 4 7th Edition by by James C. Young, Annette Nellen, Mark Persellin Chapter 1 -20 Solution and Answer Guide YOUNG , NELLEN , PERSELLIN , LASSAR , CUCCIA , CRIPE, SWFT INDIVIDUAL INCOME TAXES 2024, 9780357900550; CHAPTER 1: A N INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW TABLE OF CONTENTS Discussion Questions ................................ ................................ ...................... 1 Resea rch Problems ................................ ................................ ................ 10 Solution To Ethics & Equity Feature ................................ ............................ 11 Solutions To Becker CPA Review Questions ................................ ................ 12 DISCUSSION QUESTIONS 1. (LO 1) Various answers are possible, including using the Key Terms at th e end of each chapter, referring to the Glossary (Appendix C), looking up the footnote resources to the Internal Revenue Code in Appendix D, using chapter features (e.g., Global Tax Issues, Ethics & Equity, Tax Planning, and Framework 1040), examining the tax forms used in the chapters, and completing additional end-of-chapter assignments. All of these resources will help students engage more deeply with the materials and help their understanding. 2. (LO 1, 4) a. John must now document rental receipts and sepa rate his home expenses between personal and rental use, and he may be subject to the transient occupancy tax. b. Theresa has become self -employed. Now she will be subject to self -employment tax and may have to make quarterly installment payments of estimated income and self-employment tax. Theresa will be required to make payroll tax payments if she hires individuals to work in her business. c. Paul‘s employer might have some moving expenses that it can deduct (in general, Paul cannot deduct moving expenses). Pau l‘s personal taxes will change because Florida does not impose an income tax but California does. 3. (LO 1, 4) The income tax consequences that result are Marvin‘s principal concern. Any rent he receives is taxed as income, but operating expenses and deprecia tion will generate deductions that offset some or all of the income or even yield a loss. Marvin must also consider the effect of other taxes. Because the property is being converted from residential to commercial use, he can expect an increase in the ad valorem property taxes levied by the local (and perhaps even the state) taxing authorities. Besides the real estate taxes, personal property taxes could be imposed on the furnishings. 4. (LO 2) To finance our participation in World War II, the scope of the inc ome tax was 3 © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicl y accessible website, in whole or in part. Solution Manual for South -Western Federal Taxation 2024 Individual Income Taxes 4 7th Edition by by James C. Young, Annette Nellen, Mark Persellin Chapter 1 -20 expanded considerably —from a limited coverage of 6% to over 74% of the population. Hence, the description of the income tax as being a ―mass tax‖ became appropriate. 5. (LO 2) For wage earners, the tax law requires employers to withhold a specifie d dollar amount from wages paid to the employee to cover income taxes and payroll taxes. Persons with nonwage income generally are required to make quarterly payments to the IRS for estimated taxes. Both procedures ensure that taxpayers will be financially able to meet their annual tax liabilities. That is, the amounts withheld are meant to prepay the employee‘s income taxes and payroll taxes related to the wages earned. 6. (LO 3) The tax law of this state appears to violate the certainty and simplicity princi ples. 7. (LO 3) A tax is regressive if it represents a larger percentage of the income of a low - income taxpayer relative to the income of a high -income taxpayer. Examples of regressive taxes include sales and excise taxes. A tax is progressive if it represen ts a larger percentage of the income of a high -income taxpayer relative to the income of a low-income taxpayer. The Federal income tax is an example of a progressive tax. 8. (LO 4) a. The parsonage probably was not listed on the property tax rolls because it was owned by a tax -exempt church. Apparently the taxing authorities are not aware that ownership has changed. b. Ethan should notify the authorities of his purchase. This will force him to pay back taxes but may eliminate future interest and penalties. 9. (LO 4 ) Although the Baker Motors bid is the lowest from a long -term financial standpoint, it is the best. The proposed use of the property by the state and the church probably will make it exempt from the school district‘s ad valorem tax. This would hardly be the case with a car dealership. In fact, commercial properties (e.g., car dealerships) often are subject to higher tax rates. 10. (LO 4) a. In this case, the ―tax holiday‖ probably concerns exemption from ad valorem taxes. ―Generous‖ could involve an extended period of time (e.g., 10 years) and include both realty and personalty. b. The school district could be affected in two ways. First, due to the erosion of the tax base, less revenue would be forthcoming. Second, new workers would mean new families and more children to educate. 11. (LO 4) A possible explanation is that Sophia made capital improvements (e.g., added a swimming pool) to her residence and her parents became retirees (e.g., reached age 65). 12. (LO 4) Presuming that the dockage facilities are comparable in Massachusetts, the Agarwals may be trying to avoid ad valorem taxes on their boat. They should review the property tax laws of these two states to determine if the property tax on the boat is owed based on where the boat is moored or where the owner reside s (or possibly both). In addition, some other factor, such as where the boat is registered or titled, might be important. 13. (LO 4) In general, Federal excise taxes apply to fewer items than in the past. Lawmakers have focused on and increased certain Federa l excise taxes (e.g., those on tobacco products, gasoline, and air travel). 4 © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicl y accessible website, in whole or in part. Solution Manual for South -Western Federal Taxation 2024 Individual Income Taxes 4 7th Edition by by James C. Young, Annette Nellen, Mark Persellin Chapter 1 -20 14. (LO 4) Jayla could have been overcharged, but it is likely that at least part of the excess is attributable to a hotel occupancy tax and a car rental tax. In major cities, these types of excise taxes have become a popular way of financing capital improvements such as sports arenas and stadiums. Consequently, the amount of the taxes could be significant. 15. (LO 4) (1) Income Taxes: Income taxes and employment taxes both fall into this category of tax because they are based on the taxpayer‘s income. (2) Consumption Taxes: Sales tax and VAT fall into this category because they apply when the taxpayer purchases something. Most excise taxes fall into this category because they relate to the purc hase of something such as gasoline, tobacco, alcohol, or airline tickets. State severance taxes also fall into this category given that the extraction is for consumption. But some, such as the 1 percent excise tax that some corporations will pay on stock buybacks, are not related to consumption. (3) Wealth (or Valuation) Taxes: Property taxes fall into this category because the tax base is the value of the property. Also, estate and gift taxes are computed on the value of the property given. 16. (LO 4) a. Jackson County must be in a state that imposes a lower (or no) sales tax. With certain major purchases (i.e., big-ticket items), any use tax imposed by the state of the Garcías‘ residence could come into play. b. In some states, the sales tax rate varies depending on the county and/or city. Note: Generally, buyers are subject to the sales and use tax rate where they live. For example, if the Garcías buy goods in a different state with a zero or lower sales tax rate than in their state, they owe use tax to their home state for the difference. 17. (LO 4) Caleb probably purchased his computer out of state through a catalog or via the internet. In such cases, state collection of the sales (use) tax is not likely. Caleb needs to pay use tax on his own (which is equal to the sales tax). 18. (LO 4) If the tax is imposed on the right to pass property at death, it is classified as an estate tax. If it taxes the right to receive property from a decedent, it is termed an inheritance tax. a. Some states impose both an estate tax and an inheri tance tax. Some states (e.g., Florida and Texas) levy neither tax. b. The Federal government imposes an estate tax.
