SOLUTION MANUAL FOR g g
Taxation for Decision Makers 2017th Edition by Shirley Dennis-
g g g g g g g g
Escoffier, Karen A. Fortin
g g g g
Chapter 1-12
g
Solutions to Chapter 1 Problem Assignments
g g g g g
CheckgYourgUnderstanding
1. [LOg1.1]gWhatgisgagtax?
Solution:gAgtaxgisgagrequiredgpaymentgtogaggovernmentalgunitgtogsupportgitsgoperationsgthatgisgn
otgrelatedgtogthegvaluegofggoodsgorgservicesgthegpersongorgbusinessgreceives.gAgfinegisg
leviedgasgagresultgofgangunlawfulgact.
2. [LOg1.1]gConstitutionalgAuthority
Solution:gThegfederalgincomegtaxgsystemgasgwegknowgitgtodaygdidgnotgbeginguntilg1913gwhength
eg16thgAmendmentgtogthegU.S.gConstitutiongwasgratified.gTheg16thgAmendmentggaveg
Congressgthegpowergtoglaygandgcollectgtaxesg―ongincome,gfromgwhatevergsourcegderiv
ed,‖gwithoutgthegpreviousgrequirementgthatgallgdirectgtaxesgbegimposedgbasedg ongpop
ulation.
3. [LOg1.1]gCurrentgTaxgCode
Solution:gThegTaxgReformgActgofg1986gwasgsogextensive,gthegCodegwasgrenamedgthegInternalgR
evenuegCodegofg1986.gAnygcurrentgchangesgtogthegtaxglawsgaregnowgamendmentsgtogt
hegInternalgRevenuegCodegofg1986.
4. [LOg1.1]gTaxgExpenditures
Solution:gTaxgexpendituresgcangtakegthegformgofgspecialgexclusions,gdeductions,gcreditsgorgpref
erentialgratesgforgspecificgactivities.gThesegtaxgexpendituresgresultgingagreductiongingthe
grevenuegthatgwouldgbegcollectedgundergagmoregcomprehensivegincomegtax.
5. [LOg1.1]gSALT
Solution:gThegpracticegofgstategandglocalgtaxationgisgcommonlygreferredgtogasgagSALTgpractice.
6. [LOg1.1]gNexus
Solution:gNexusgisgthegnecessarygtypegandgdegreegofgconnectiongbetweengagbusinessgandgthegst
ategingwhichgitgisglocatedgforgthegstategtogimposegagtaxgongitsgsalesgorgactivities
7. [LOg1.1]gStategIncomegTax
Solution:gWithoutgphysicalgpresencegwithingArizona,gthegstategcannotgassessgstategincomegtaxgo
ngSuntangCorporation’sgsalesgmadegtogpersonsgorgbusinessesglocatedgwithingArizona.
,2
8. [LOg1.1]gFranchisegTax
Solution:gAgfranchisegtaxgisgangexcisegtaxgbasedgongthegrightgtogdogbusinessgorgowngpropertygingag
state.gItgisgusuallygdeterminedgbasedgongcorporategincome,ghowever,gsogwould,gingeffe
ct,gsimplygbeganothergnamegforgangincomegtax.
9. [LOg1.1]gStategIncomegAllocation
Solution:gThegthree-
factorgallocationgformulagusesgagpercentagegofgcorporategsales,gpayrollgcosts,gandgtan
giblegpropertygallocatedgtogthegstate.
10. [LOg1.1]gEmploymentgTaxes
Solution:gAngemployeegpaysgthegSocialgSecuritygandgMedicareg(FICA)gtax;gthegemployergalsogp
aysgangequivalentgSocialgSecuritygandgMedicareg(FICA)gtax,gbutgthegemployergalsogm
ayghavegtogpaygangunemploymentgtax.
11. [LOg1.1]gWealthgTaxes
Solution:gThegmostgcommongwealthgtaxgisgthegrealgpropertygtaxgbasedgongthegfairgmarketgvaluego
fgpropertygownedgbygangindividualgorgagbusiness.
12. [LOg1.1]gIntangiblegTax
Solution:gThegintangiblegtaxgisgleviedgongintangiblegpropertygsuchgasgreceivables,gstocks,gbon
ds,gandgothergformsgofginvestmentginstrumentsgownedgbygbusinessesgandgindividuals.
13. [LOg1.1]gEstategandgGiftgTax
Solution:gPropertygthatgisggivengawaygduringgaglifetimegthatgexceedsgangannualgallowancegpergd
oneegisgsubjectgtogaggiftgtax;ghowever,gtheglifetimegexemptiongpreventsgmostggiftsgfro
mgbeinggsubjectgtogthisgtax.gOnce,ghowever,gtaxableggiftsgexceedgtheglifetimegexempt
ion,ggiftsgaregsubjectgtogtheggiftgtax.gWhengthegpersongpassesgaway,gthegremaininggpro
pertygownedgatgdeathg(notgpreviouslyggivengaway)gisgnowgsubjectgtogthegestategtax.gA
nyggiftgtaxgexemptiongnotgusedgpreviouslygbygthegdecedentgisgthengavailablegasgangex
emptiongfromgthegestategtax.gThus,gagdecedent’sgestategescapesgtaxationgunlessghisgorg
hergtotalglifetimegtaxableggiftsgplusgtaxablegtransfersgatgdeathgexceedgtheglifetimegexe
mption.
14. [LOg1.1]gConsumptiongvsgIncomegTax
Solution:gAgconsumptiongtaxgisgleviedgongpurchasesgofggoodsgorgservicesgthatgareggoinggtogbegu
sedgorgconsumed.gThegmostgcommongconsumptiongtaxgisgthegsalesgtax,gbutgthegvalue-
addedgtaxgisganothergformgusedgingmanygcountriesgoutsidegthegUnitedgStates.gTheginc
omegtaxgisgbasedgongthegvaluegofgmoneygorggoodsgthatgaregreceived,gwhethergitgisgspen
tgorgsaved.gAngincomegtaxgwillgtaxgmoneygthatgisggoinggtogbegsavedgrathergthangspentg
whilegthegconsumptiongtaxgonlygtaxesgmoneygthatgisgspent.gThegconsumptiongtaxgisgt
houghtgtogencouragegsavings.
15. [LOg1.1]gWealthgTaxes
Solution:gAgwealthgtaxgisgbasedgongthegvaluegofgwealthgthatgagpersonghasgatgagparticulargpoint
, Chapterg1:gAngIntroductiongtogTaxationg3
ingtime.gThegrealgorgpersonalgpropertygtaxesgaregwealthgtaxes.gThegwealthgtransfergtax
gisgbasedgongthegvaluegofgmoneygorgpropertygthatgisgpassedgongtoganothergperson.gTheg
estate,ggift,gandginheritancegtaxesgaregwealthgtransfergtaxes.
16. [LOg1.1]gUsegTaxes
Solution:gAgusegtaxgisgagcompaniongtaxgtogagsalesgtaxgthatgisgimposedgongpropertygtogbegusedging
onegstategbutgwhichgwasgpurchasedginganothergstategtogwhichgnogsalesgtaxgwasgpaidgo
ngthegpurchase.
17. [LOg1.1]gIncomegTaxes
Solution:gTwogsinglegpersonsgwithgtaxablegincomegofg$76,550geachgwillgpaygthegsamegtotalgtaxga
sgagmarriedgcouplegwithgtaxablegincomegofg$153,100.gAboveg$153,100gthegmarriedgco
uple’sgrategincreasesgtog28%gbutgeachgofgthegsinglegpersonsgdoesgnotgreachgthatgrategun
tilgtaxablegincomegisgoverg$91,900.
18. [LOg1.2]gTypesgofgTaxes
Solution:gThegincomegtaxgsystemgingthegUnitedgStatesgisgagprogressivegsystem;gthatgis,gasgincom
egincreases,gthegtaxgrategincreasesgandgthegpersongpaysgaggreatergpercentagegofgincome
gasgagtax.gAgpersongwhoghasg$9,000gofgtaxablegincomegwillgpayg$900gingtaxesg(10%).gA
gpersongwhogmakesg$18,000gwillgpayg$2,233.75g($932.50g+g.15g($18,000g-
$9,325).g$2,233.75/$18,000g=g12.41%.gAgregressivegtaxgsystemgimposesgaglowergtaxgr
ategasgincomegincreases;gthatgis,gagpersongpaysgagdecreasinggpercentagegofgtheirgincom
egingtaxesgasgincomegincreases.gThegSocialgSecuritygportiongofgthegFICAgtaxgisgagregre
ssivegtax;gasgthegtaxpayer’sgincomegongwhichgthegtaxgisgbasedgexceedsgagmaximum,gth
egtaxgisgnoglongergcollectedgandgthegrategdeclines.gAgproportionalgtaxgwouldgcollectgth
egsamegpercentagegofgtaxgongthegtaxgbase,gregardlessgofgthegsizegofgthegbase.gThegsalesg
taxgisgagproportionalgtaxgasgthegsamegpercentgtaxgisgcollectedgregardlessgofgthegamountg
spent.
19. [LOg1.2]gIncomegTaxgRates
Solution:gIndividualsghavegbasicgtaxgratesgofg10%,g15%,g25%,g28%,g33%,g35%,gandg39.6%gthatg
applygtogtheirgordinarygincomegandgtheirginterestgincome.gThegbasicgtaxgratesgforgtheirg
dividendgincomegareg0%,g15%,gandg20%.gCorporationsghavegnogtax-
favoredgincomesgsogtheygpaygtaxgongallgincomegatgratesgofg15%,g25%,g34%,gandg35%,g
excludinggsurtaxesgongcertaingportionsgofgincomegthatgultimatelygproducegagflatgtaxgof
g35%gongincomegaboveg$18,333,333.
20. [LOg1.2]gIncomegTaxgRates
Solution:gIndividual’sgshort-
termgcapitalggainsgtaxgratesgaregthegsamegasgthegtaxgratesgongordinarygincome.gAgsingl
egindividual’sglong-termgcapitalggainsgratesgareg0%gon
long-termgcapitalggainsg(LTCG)gfromg0gtog$37,950;g15%gongLTCGgfromg$37,951gto
$418,400,gandg20%gongLTCGgexceedingg$418,400.
21. [LOg1.3]gCanonsgofgTaxation
Solution:gThegbasicgideagofgequitygisgthatgpersonsgwithgsimilargincomesgwillgfacegsimilargtaxes.gT
hus,gindividualsgeachgwithg$200,000gingtaxablegincomegwillgpaygthegsamegamount
, 4
ofgtax.gAgtaxgmeetsgthegcriteriongofgeconomygwhengthegamountgofgrevenuegitgraisesgisga
tgangoptimumglevelgaftergthegcostsgofgadministrationgandgcompliancegareg considered.g
Thegcanongofgcertaintygwouldgdictategthatgagtaxpayergknowgwithgreasonablegaccuracyg
thegtaxgconsequencesgofgagtransactiongatgthegtimegthegtransactiongtakesgplace.gTheglastg
canongofgconveniencegstatesgthatgagconvenientgtaxg isgonegthatgwouldgbegreadilygdeter
minedgandgpaidgwithglittlegeffort.
22. [LOg1.3]gEquitygConcepts
Solution:gHorizontalgequitygwouldgrequiregpersonsgwithgequalgincomesgpaygequalgamountsgofgta
xes.gVerticalgequitygwouldgrequiregpersonsgwithghighergincomesgtogpaygaghighergperce
ntagegofgtheirgincomegthangpersonsgwithglowergincomes.gThisgisgthegbasisgofgthe
U.S.gtaxgsystem.
23. [LOg1.4]gTaxablegPersons
Solution:gOnlygindividuals,gregularg(orgC)gcorporations,gandgfiduciariesg(estatesgandgtrusts)gpay
gincomegtaxes.
24. [LOg1.4]gGrossgIncome
Solution:gThegtermggrossgincomegisgangall-
inclusivegtermgthatgincludesgincomegfromgallgsourcesgthatgaregnotgspecificallygexclud
ed.
25. [LOg1.4]gBasicgTaxgModel
Solution:gThegbasicgelementsgofgthegtaxgmodelgareggrossgincome,glessgdeductions,gthatgequalgtax
ablegincomegorgloss.gThegapplicablegtaxgrategisgappliedgtogthisgtogdeterminegtheggrossgt
axgliability.gFromgthisgtaxgcreditsgandgprepaymentsgaregdeductedgtogdeterminegthegtaxgl
iabilitygowedgorgthegrefundgdue.
26. [LOg1.4]gCapitalgLosses
Solution:gAngindividualgmaygdeductgupgtog$3,000gofgcapitalglossesgingexcessgofgcapitalggainsgan
nually;gthegexcessgmaygbegcarriedgforwardgindefinitelygtogsucceedinggyears.gAgcorpor
ationgcangonlygoffsetgcapitalglossesgagainstgcapitalggains;glossesgaregnotgdeductiblegag
ainstgothergincome.gInsteadgthegcorporationgfirstgcarriesgtheglossesgbackgtogthegthreegpr
eviousgyearsgandgthengforwardgforg5gyears.
27. [LOg1.4]gBasicgIncomegTaxgRates
Solution:gIndividualsghavegbasicgtaxgratesgofg10%,g15%,g25%,g28%,g33%,g35%,gandg39.6%gtha
tgaregappliedgtogtheirgordinarygincome.gAgcorporation’sgbasicgtaxgratesgareg15%,g25%,
g34%,gandg35%,gexcludinggsurtaxes.
28. [LOg1.4]gFiduciaries
Solution:gTrustsgandgestatesgaregtwogfiduciarygentities;gagtrustgisgestablishedgbygaggrantorgwhoga
ppointsgagtrusteegtogmanagegthegassetsgforgthegbenefitgofgthegtrust’sgbeneficiaries.gAng
estategisgangentitygthatgisgcreatedgongthegdeathgofgagpersongthatgprovidesgmanagementg
forgthegassetsgingthegdecedent’sgestateguntilgtheygcangbegdistributedgtogthegbeneficiarie
s.gAggrantorgisgthegpersongwhogcreatesgthegtrustgwhengassetsgaregplacedgingthegtrustgfor
gthegbenefitgofgthegbeneficiaries.gThegtrusteegisgthegperson
Taxation for Decision Makers 2017th Edition by Shirley Dennis-
g g g g g g g g
Escoffier, Karen A. Fortin
g g g g
Chapter 1-12
g
Solutions to Chapter 1 Problem Assignments
g g g g g
CheckgYourgUnderstanding
1. [LOg1.1]gWhatgisgagtax?
Solution:gAgtaxgisgagrequiredgpaymentgtogaggovernmentalgunitgtogsupportgitsgoperationsgthatgisgn
otgrelatedgtogthegvaluegofggoodsgorgservicesgthegpersongorgbusinessgreceives.gAgfinegisg
leviedgasgagresultgofgangunlawfulgact.
2. [LOg1.1]gConstitutionalgAuthority
Solution:gThegfederalgincomegtaxgsystemgasgwegknowgitgtodaygdidgnotgbeginguntilg1913gwhength
eg16thgAmendmentgtogthegU.S.gConstitutiongwasgratified.gTheg16thgAmendmentggaveg
Congressgthegpowergtoglaygandgcollectgtaxesg―ongincome,gfromgwhatevergsourcegderiv
ed,‖gwithoutgthegpreviousgrequirementgthatgallgdirectgtaxesgbegimposedgbasedg ongpop
ulation.
3. [LOg1.1]gCurrentgTaxgCode
Solution:gThegTaxgReformgActgofg1986gwasgsogextensive,gthegCodegwasgrenamedgthegInternalgR
evenuegCodegofg1986.gAnygcurrentgchangesgtogthegtaxglawsgaregnowgamendmentsgtogt
hegInternalgRevenuegCodegofg1986.
4. [LOg1.1]gTaxgExpenditures
Solution:gTaxgexpendituresgcangtakegthegformgofgspecialgexclusions,gdeductions,gcreditsgorgpref
erentialgratesgforgspecificgactivities.gThesegtaxgexpendituresgresultgingagreductiongingthe
grevenuegthatgwouldgbegcollectedgundergagmoregcomprehensivegincomegtax.
5. [LOg1.1]gSALT
Solution:gThegpracticegofgstategandglocalgtaxationgisgcommonlygreferredgtogasgagSALTgpractice.
6. [LOg1.1]gNexus
Solution:gNexusgisgthegnecessarygtypegandgdegreegofgconnectiongbetweengagbusinessgandgthegst
ategingwhichgitgisglocatedgforgthegstategtogimposegagtaxgongitsgsalesgorgactivities
7. [LOg1.1]gStategIncomegTax
Solution:gWithoutgphysicalgpresencegwithingArizona,gthegstategcannotgassessgstategincomegtaxgo
ngSuntangCorporation’sgsalesgmadegtogpersonsgorgbusinessesglocatedgwithingArizona.
,2
8. [LOg1.1]gFranchisegTax
Solution:gAgfranchisegtaxgisgangexcisegtaxgbasedgongthegrightgtogdogbusinessgorgowngpropertygingag
state.gItgisgusuallygdeterminedgbasedgongcorporategincome,ghowever,gsogwould,gingeffe
ct,gsimplygbeganothergnamegforgangincomegtax.
9. [LOg1.1]gStategIncomegAllocation
Solution:gThegthree-
factorgallocationgformulagusesgagpercentagegofgcorporategsales,gpayrollgcosts,gandgtan
giblegpropertygallocatedgtogthegstate.
10. [LOg1.1]gEmploymentgTaxes
Solution:gAngemployeegpaysgthegSocialgSecuritygandgMedicareg(FICA)gtax;gthegemployergalsogp
aysgangequivalentgSocialgSecuritygandgMedicareg(FICA)gtax,gbutgthegemployergalsogm
ayghavegtogpaygangunemploymentgtax.
11. [LOg1.1]gWealthgTaxes
Solution:gThegmostgcommongwealthgtaxgisgthegrealgpropertygtaxgbasedgongthegfairgmarketgvaluego
fgpropertygownedgbygangindividualgorgagbusiness.
12. [LOg1.1]gIntangiblegTax
Solution:gThegintangiblegtaxgisgleviedgongintangiblegpropertygsuchgasgreceivables,gstocks,gbon
ds,gandgothergformsgofginvestmentginstrumentsgownedgbygbusinessesgandgindividuals.
13. [LOg1.1]gEstategandgGiftgTax
Solution:gPropertygthatgisggivengawaygduringgaglifetimegthatgexceedsgangannualgallowancegpergd
oneegisgsubjectgtogaggiftgtax;ghowever,gtheglifetimegexemptiongpreventsgmostggiftsgfro
mgbeinggsubjectgtogthisgtax.gOnce,ghowever,gtaxableggiftsgexceedgtheglifetimegexempt
ion,ggiftsgaregsubjectgtogtheggiftgtax.gWhengthegpersongpassesgaway,gthegremaininggpro
pertygownedgatgdeathg(notgpreviouslyggivengaway)gisgnowgsubjectgtogthegestategtax.gA
nyggiftgtaxgexemptiongnotgusedgpreviouslygbygthegdecedentgisgthengavailablegasgangex
emptiongfromgthegestategtax.gThus,gagdecedent’sgestategescapesgtaxationgunlessghisgorg
hergtotalglifetimegtaxableggiftsgplusgtaxablegtransfersgatgdeathgexceedgtheglifetimegexe
mption.
14. [LOg1.1]gConsumptiongvsgIncomegTax
Solution:gAgconsumptiongtaxgisgleviedgongpurchasesgofggoodsgorgservicesgthatgareggoinggtogbegu
sedgorgconsumed.gThegmostgcommongconsumptiongtaxgisgthegsalesgtax,gbutgthegvalue-
addedgtaxgisganothergformgusedgingmanygcountriesgoutsidegthegUnitedgStates.gTheginc
omegtaxgisgbasedgongthegvaluegofgmoneygorggoodsgthatgaregreceived,gwhethergitgisgspen
tgorgsaved.gAngincomegtaxgwillgtaxgmoneygthatgisggoinggtogbegsavedgrathergthangspentg
whilegthegconsumptiongtaxgonlygtaxesgmoneygthatgisgspent.gThegconsumptiongtaxgisgt
houghtgtogencouragegsavings.
15. [LOg1.1]gWealthgTaxes
Solution:gAgwealthgtaxgisgbasedgongthegvaluegofgwealthgthatgagpersonghasgatgagparticulargpoint
, Chapterg1:gAngIntroductiongtogTaxationg3
ingtime.gThegrealgorgpersonalgpropertygtaxesgaregwealthgtaxes.gThegwealthgtransfergtax
gisgbasedgongthegvaluegofgmoneygorgpropertygthatgisgpassedgongtoganothergperson.gTheg
estate,ggift,gandginheritancegtaxesgaregwealthgtransfergtaxes.
16. [LOg1.1]gUsegTaxes
Solution:gAgusegtaxgisgagcompaniongtaxgtogagsalesgtaxgthatgisgimposedgongpropertygtogbegusedging
onegstategbutgwhichgwasgpurchasedginganothergstategtogwhichgnogsalesgtaxgwasgpaidgo
ngthegpurchase.
17. [LOg1.1]gIncomegTaxes
Solution:gTwogsinglegpersonsgwithgtaxablegincomegofg$76,550geachgwillgpaygthegsamegtotalgtaxga
sgagmarriedgcouplegwithgtaxablegincomegofg$153,100.gAboveg$153,100gthegmarriedgco
uple’sgrategincreasesgtog28%gbutgeachgofgthegsinglegpersonsgdoesgnotgreachgthatgrategun
tilgtaxablegincomegisgoverg$91,900.
18. [LOg1.2]gTypesgofgTaxes
Solution:gThegincomegtaxgsystemgingthegUnitedgStatesgisgagprogressivegsystem;gthatgis,gasgincom
egincreases,gthegtaxgrategincreasesgandgthegpersongpaysgaggreatergpercentagegofgincome
gasgagtax.gAgpersongwhoghasg$9,000gofgtaxablegincomegwillgpayg$900gingtaxesg(10%).gA
gpersongwhogmakesg$18,000gwillgpayg$2,233.75g($932.50g+g.15g($18,000g-
$9,325).g$2,233.75/$18,000g=g12.41%.gAgregressivegtaxgsystemgimposesgaglowergtaxgr
ategasgincomegincreases;gthatgis,gagpersongpaysgagdecreasinggpercentagegofgtheirgincom
egingtaxesgasgincomegincreases.gThegSocialgSecuritygportiongofgthegFICAgtaxgisgagregre
ssivegtax;gasgthegtaxpayer’sgincomegongwhichgthegtaxgisgbasedgexceedsgagmaximum,gth
egtaxgisgnoglongergcollectedgandgthegrategdeclines.gAgproportionalgtaxgwouldgcollectgth
egsamegpercentagegofgtaxgongthegtaxgbase,gregardlessgofgthegsizegofgthegbase.gThegsalesg
taxgisgagproportionalgtaxgasgthegsamegpercentgtaxgisgcollectedgregardlessgofgthegamountg
spent.
19. [LOg1.2]gIncomegTaxgRates
Solution:gIndividualsghavegbasicgtaxgratesgofg10%,g15%,g25%,g28%,g33%,g35%,gandg39.6%gthatg
applygtogtheirgordinarygincomegandgtheirginterestgincome.gThegbasicgtaxgratesgforgtheirg
dividendgincomegareg0%,g15%,gandg20%.gCorporationsghavegnogtax-
favoredgincomesgsogtheygpaygtaxgongallgincomegatgratesgofg15%,g25%,g34%,gandg35%,g
excludinggsurtaxesgongcertaingportionsgofgincomegthatgultimatelygproducegagflatgtaxgof
g35%gongincomegaboveg$18,333,333.
20. [LOg1.2]gIncomegTaxgRates
Solution:gIndividual’sgshort-
termgcapitalggainsgtaxgratesgaregthegsamegasgthegtaxgratesgongordinarygincome.gAgsingl
egindividual’sglong-termgcapitalggainsgratesgareg0%gon
long-termgcapitalggainsg(LTCG)gfromg0gtog$37,950;g15%gongLTCGgfromg$37,951gto
$418,400,gandg20%gongLTCGgexceedingg$418,400.
21. [LOg1.3]gCanonsgofgTaxation
Solution:gThegbasicgideagofgequitygisgthatgpersonsgwithgsimilargincomesgwillgfacegsimilargtaxes.gT
hus,gindividualsgeachgwithg$200,000gingtaxablegincomegwillgpaygthegsamegamount
, 4
ofgtax.gAgtaxgmeetsgthegcriteriongofgeconomygwhengthegamountgofgrevenuegitgraisesgisga
tgangoptimumglevelgaftergthegcostsgofgadministrationgandgcompliancegareg considered.g
Thegcanongofgcertaintygwouldgdictategthatgagtaxpayergknowgwithgreasonablegaccuracyg
thegtaxgconsequencesgofgagtransactiongatgthegtimegthegtransactiongtakesgplace.gTheglastg
canongofgconveniencegstatesgthatgagconvenientgtaxg isgonegthatgwouldgbegreadilygdeter
minedgandgpaidgwithglittlegeffort.
22. [LOg1.3]gEquitygConcepts
Solution:gHorizontalgequitygwouldgrequiregpersonsgwithgequalgincomesgpaygequalgamountsgofgta
xes.gVerticalgequitygwouldgrequiregpersonsgwithghighergincomesgtogpaygaghighergperce
ntagegofgtheirgincomegthangpersonsgwithglowergincomes.gThisgisgthegbasisgofgthe
U.S.gtaxgsystem.
23. [LOg1.4]gTaxablegPersons
Solution:gOnlygindividuals,gregularg(orgC)gcorporations,gandgfiduciariesg(estatesgandgtrusts)gpay
gincomegtaxes.
24. [LOg1.4]gGrossgIncome
Solution:gThegtermggrossgincomegisgangall-
inclusivegtermgthatgincludesgincomegfromgallgsourcesgthatgaregnotgspecificallygexclud
ed.
25. [LOg1.4]gBasicgTaxgModel
Solution:gThegbasicgelementsgofgthegtaxgmodelgareggrossgincome,glessgdeductions,gthatgequalgtax
ablegincomegorgloss.gThegapplicablegtaxgrategisgappliedgtogthisgtogdeterminegtheggrossgt
axgliability.gFromgthisgtaxgcreditsgandgprepaymentsgaregdeductedgtogdeterminegthegtaxgl
iabilitygowedgorgthegrefundgdue.
26. [LOg1.4]gCapitalgLosses
Solution:gAngindividualgmaygdeductgupgtog$3,000gofgcapitalglossesgingexcessgofgcapitalggainsgan
nually;gthegexcessgmaygbegcarriedgforwardgindefinitelygtogsucceedinggyears.gAgcorpor
ationgcangonlygoffsetgcapitalglossesgagainstgcapitalggains;glossesgaregnotgdeductiblegag
ainstgothergincome.gInsteadgthegcorporationgfirstgcarriesgtheglossesgbackgtogthegthreegpr
eviousgyearsgandgthengforwardgforg5gyears.
27. [LOg1.4]gBasicgIncomegTaxgRates
Solution:gIndividualsghavegbasicgtaxgratesgofg10%,g15%,g25%,g28%,g33%,g35%,gandg39.6%gtha
tgaregappliedgtogtheirgordinarygincome.gAgcorporation’sgbasicgtaxgratesgareg15%,g25%,
g34%,gandg35%,gexcludinggsurtaxes.
28. [LOg1.4]gFiduciaries
Solution:gTrustsgandgestatesgaregtwogfiduciarygentities;gagtrustgisgestablishedgbygaggrantorgwhoga
ppointsgagtrusteegtogmanagegthegassetsgforgthegbenefitgofgthegtrust’sgbeneficiaries.gAng
estategisgangentitygthatgisgcreatedgongthegdeathgofgagpersongthatgprovidesgmanagementg
forgthegassetsgingthegdecedent’sgestateguntilgtheygcangbegdistributedgtogthegbeneficiarie
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