SOLUTION MANUAL FOR c c
Taxation for Decision Makers 2017th Edition by Shirley Dennis-
c c c c c c c c
Escoffier, Karen A. Fortin
c c c
Chapter 1-12
c
Solutions to Chapter 1 Problem Assignments
c c c c c
CheckcYourcUnderstanding
1. [LOc1.1]ccWhatciscactax?
Solution:cActaxciscacrequiredcpaymentctocacgovernmentalcunitctocsupportcitscoperationscthatciscno
tcrelatedctocthecvaluecofcgoodscorcservicescthecpersoncorcbusinesscreceives.cAcfineciscle
viedcascacresultcofcancunlawfulcact.
2. [LOc1.1]cConstitutionalcAuthority
Solution:cThecfederalcincomectaxcsystemcascwecknowcitctodaycdidcnotcbegincuntilc1913cwhencthec
16thcAmendmentctocthecU.S.cConstitutioncwascratified.cThec16thcAmendmentcgavecC
ongresscthecpowerctoclaycandccollectctaxesc—
oncincome,cfromcwhatevercsourcecderived,‖cwithoutcthecpreviouscrequirementcthatcallc
directctaxescbecimposedcbasedc oncpopulation.
3. [LOc1.1]cCurrentcTaxcCode
Solution:cThecTaxcReformcActcofc1986cwascsocextensive,cthecCodecwascrenamedcthecInternalcR
evenuecCodecofc1986.cAnyccurrentcchangesctocthectaxclawscarecnowcamendmentsctocth
ecInternalcRevenuecCodecofc1986.
4. [LOc1.1]cTaxcExpenditures
Solution:cTaxcexpendituresccanctakecthecformcofcspecialcexclusions,cdeductions,ccreditscorcprefe
rentialcratescforcspecificcactivities.cThesectaxcexpenditurescresultcincacreductioncincthecr
evenuecthatcwouldcbeccollectedcundercacmoreccomprehensivecincomectax.
5. [LOc1.1]cSALT
Solution:cThecpracticecofcstatecandclocalctaxationcisccommonlycreferredctocascacSALTcpractice.
6. [LOc1.1]cNexus
Solution:cNexusciscthecnecessaryctypecandcdegreecofcconnectioncbetweencacbusinesscandcthecsta
tecincwhichcitcisclocatedcforcthecstatectocimposecactaxconcitscsalescorcactivities
7. [LOc1.1]cStatecIncomecTax
Solution:cWithoutcphysicalcpresencecwithincArizona,cthecstateccannotcassesscstatecincomectaxco
ncSuntancCorporation’scsalescmadectocpersonscorcbusinessesclocatedcwithincArizona.
,2
8. [LOc1.1]cFranchisecTax
Solution:cAcfranchisectaxciscancexcisectaxcbasedconcthecrightctocdocbusinesscorcowncpropertycincacs
tate.cItciscusuallycdeterminedcbasedconccorporatecincome,chowever,csocwould,cinceffect
,csimplycbecanothercnamecforcancincomectax.
9. [LOc1.1]cStatecIncomecAllocation
Solution:cThecthree-
factorcallocationcformulacusescacpercentagecofccorporatecsales,cpayrollccosts,candctang
iblecpropertycallocatedctocthecstate.
10. [LOc1.1]cEmploymentcTaxes
Solution:cAncemployeecpayscthecSocialcSecuritycandcMedicarec(FICA)ctax;cthecemployercalsocp
ayscancequivalentcSocialcSecuritycandcMedicarec(FICA)ctax,cbutcthecemployercalsocma
ychavectocpaycancunemploymentctax.
11. [LOc1.1]cWealthcTaxes
Solution:cThecmostccommoncwealthctaxciscthecrealcpropertyctaxcbasedconcthecfaircmarketcvaluecofc
propertycownedcbycancindividualcorcacbusiness.
12. [LOc1.1]cIntangiblecTax
Solution:cThecintangiblectaxciscleviedconcintangiblecpropertycsuchcascreceivables,cstocks,cbond
s,candcothercformscofcinvestmentcinstrumentscownedcbycbusinessescandcindividuals.
13. [LOc1.1]cEstatecandcGiftcTax
Solution:cPropertycthatciscgivencawaycduringcaclifetimecthatcexceedscancannualcallowancecpercdo
neeciscsubjectctocacgiftctax;chowever,ctheclifetimecexemptioncpreventscmostcgiftscfromc
beingcsubjectctocthisctax.cOnce,chowever,ctaxablecgiftscexceedctheclifetimecexemption
,cgiftscarecsubjectctocthecgiftctax.cWhencthecpersoncpassescaway,cthecremainingcpropert
ycownedcatcdeathc(notcpreviouslycgivencaway)ciscnowcsubjectctocthecestatectax.cAnycgi
ftctaxcexemptioncnotcusedcpreviouslycbycthecdecedentciscthencavailablecascancexempti
oncfromcthecestatectax.cThus,cacdecedent’scestatecescapesctaxationcunlesschiscorcherctot
alclifetimectaxablecgiftscplusctaxablectransferscatcdeathcexceedctheclifetimecexemption
.
14. [LOc1.1]cConsumptioncvscIncomecTax
Solution:cAcconsumptionctaxciscleviedconcpurchasescofcgoodscorcservicescthatcarecgoingctocbecus
edcorcconsumed.cThecmostccommoncconsumptionctaxciscthecsalesctax,cbutcthecvalue-
addedctaxciscanothercformcusedcincmanyccountriescoutsidecthecUnitedcStates.cThecinco
mectaxciscbasedconcthecvaluecofcmoneycorcgoodscthatcarecreceived,cwhethercitciscspentco
rcsaved.cAncincomectaxcwillctaxcmoneycthatciscgoingctocbecsavedcrathercthancspentcwhi
lecthecconsumptionctaxconlyctaxescmoneycthatciscspent.cThecconsumptionctaxciscthoug
htctocencouragecsavings.
15. [LOc1.1]cWealthcTaxes
Solution:cAcwealthctaxciscbasedconcthecvaluecofcwealthcthatcacpersonchascatcacparticularcpoint
, Chapterc1:cAncIntroductionctocTaxationc3
inctime.cThecrealcorcpersonalcpropertyctaxescarecwealthctaxes.cThecwealthctransferctaxc
iscbasedconcthecvaluecofcmoneycorcpropertycthatciscpassedconctocanothercperson.cTheces
tate,cgift,candcinheritancectaxescarecwealthctransferctaxes.
16. [LOc1.1]cUsecTaxes
Solution:cAcusectaxciscaccompanionctaxctocacsalesctaxcthatciscimposedconcpropertyctocbecusedcinco
necstatecbutcwhichcwascpurchasedcincanothercstatectocwhichcnocsalesctaxcwascpaidconct
hecpurchase.
17. [LOc1.1]cIncomecTaxes
Solution:cTwocsinglecpersonscwithctaxablecincomecofc$76,550ceachcwillcpaycthecsamectotalctaxcas
cacmarriedccouplecwithctaxablecincomecofc$153,100.cAbovec$153,100cthecmarriedccou
ple’scratecincreasesctoc28%cbutceachcofcthecsinglecpersonscdoescnotcreachcthatcratecuntil
ctaxablecincomeciscoverc$91,900.
18. [LOc1.2]cTypescofcTaxes
Solution:cThecincomectaxcsystemcincthecUnitedcStatesciscacprogressivecsystem;cthatcis,cascincome
cincreases,cthectaxcratecincreasescandcthecpersoncpayscacgreatercpercentagecofcincomeca
scactax.cAcpersoncwhochasc$9,000cofctaxablecincomecwillcpayc$900cinctaxesc(10%).cAcp
ersoncwhocmakesc$18,000cwillcpayc$2,233.75c($932.50c+c.15c($18,000c-
$9,325).c$2,233.75/$18,000c=c12.41%.cAcregressivectaxcsystemcimposescaclowerctaxcr
atecascincomecincreases;cthatcis,cacpersoncpayscacdecreasingcpercentagecofctheircincome
cinctaxescascincomecincreases.cThecSocialcSecuritycportioncofcthecFICActaxciscacregressi
vectax;cascthectaxpayer’scincomeconcwhichcthectaxciscbasedcexceedscacmaximum,cthecta
xciscnoclongerccollectedcandcthecratecdeclines.cAcproportionalctaxcwouldccollectcthecsa
mecpercentagecofctaxconcthectaxcbase,cregardlesscofcthecsizecofcthecbase.cThecsalesctaxci
scacproportionalctaxcascthecsamecpercentctaxcisccollectedcregardlesscofcthecamountcspen
t.
19. [LOc1.2]cIncomecTaxcRates
Solution:cIndividualschavecbasicctaxcratescofc10%,c15%,c25%,c28%,c33%,c35%,candc39.6%cthatca
pplyctoctheircordinarycincomecandctheircinterestcincome.cThecbasicctaxcratescforctheircdi
videndcincomecarec0%,c15%,candc20%.cCorporationschavecnoctax-
favoredcincomescsoctheycpayctaxconcallcincomecatcratescofc15%,c25%,c34%,candc35%,ce
xcludingcsurtaxesconccertaincportionscofcincomecthatcultimatelycproducecacflatctaxcofc3
5%concincomecabovec$18,333,333.
20. [LOc1.2]cIncomecTaxcRates
Solution:cIndividual’scshort-
termccapitalcgainsctaxcratescarecthecsamecascthectaxcratesconcordinarycincome.cAcsinglec
individual’sclong-termccapitalcgainscratescarec0%con
long-termccapitalcgainsc(LTCG)cfromc0ctoc$37,950;c15%concLTCGcfromc$37,951cto
$418,400,candc20%concLTCGcexceedingc$418,400.
21. [LOc1.3]cCanonscofcTaxation
Solution:cThecbasiccideacofcequityciscthatcpersonscwithcsimilarcincomescwillcfacecsimilarctaxes.cT
hus,cindividualsceachcwithc$200,000cinctaxablecincomecwillcpaycthecsamecamount
, 4
ofctax.cActaxcmeetsctheccriterioncofceconomycwhencthecamountcofcrevenuecitcraisesciscatc
ancoptimumclevelcafterctheccostscofcadministrationcandccompliancecarec considered.cT
heccanoncofccertaintycwouldcdictatecthatcactaxpayercknowcwithcreasonablecaccuracycth
ectaxcconsequencescofcactransactioncatcthectimecthectransactionctakescplace.cTheclastcca
noncofcconveniencecstatescthatcacconvenientctaxc isconecthatcwouldcbecreadilycdetermin
edcandcpaidcwithclittleceffort.
22. [LOc1.3]cEquitycConcepts
Solution:cHorizontalcequitycwouldcrequirecpersonscwithcequalcincomescpaycequalcamountscofctax
es.cVerticalcequitycwouldcrequirecpersonscwithchighercincomesctocpaycachighercpercent
agecofctheircincomecthancpersonscwithclowercincomes.cThisciscthecbasiscofcthe
U.S.ctaxcsystem.
23. [LOc1.4]cTaxablecPersons
Solution:cOnlycindividuals,cregularc(orcC)ccorporations,candcfiduciariesc(estatescandctrusts)cpayc
incomectaxes.
24. [LOc1.4]cGrosscIncome
Solution:cThectermcgrosscincomeciscancall-
inclusivectermcthatcincludescincomecfromcallcsourcescthatcarecnotcspecificallycexclude
d.
25. [LOc1.4]cBasiccTaxcModel
Solution:cThecbasiccelementscofcthectaxcmodelcarecgrosscincome,clesscdeductions,cthatcequalctaxa
blecincomecorcloss.cThecapplicablectaxcrateciscappliedctocthisctocdeterminecthecgrossctaxc
liability.cFromcthisctaxccreditscandcprepaymentscarecdeductedctocdeterminecthectaxcliabi
litycowedcorcthecrefundcdue.
26. [LOc1.4]cCapitalcLosses
Solution:cAncindividualcmaycdeductcupctoc$3,000cofccapitalclossescincexcesscofccapitalcgainscann
ually;cthecexcesscmaycbeccarriedcforwardcindefinitelyctocsucceedingcyears.cAccorporati
onccanconlycoffsetccapitalclossescagainstccapitalcgains;clossescarecnotcdeductiblecagains
tcothercincome.cInsteadctheccorporationcfirstccarriesctheclossescbackctocthecthreecpreviou
scyearscandcthencforwardcforc5cyears.
27. [LOc1.4]cBasiccIncomecTaxcRates
Solution:cIndividualschavecbasicctaxcratescofc10%,c15%,c25%,c28%,c33%,c35%,candc39.6%cthatc
arecappliedctoctheircordinarycincome.cAccorporation’scbasicctaxcratescarec15%,c25%,c3
4%,candc35%,cexcludingcsurtaxes.
28. [LOc1.4]cFiduciaries
Solution:cTrustscandcestatescarectwocfiduciarycentities;cactrustciscestablishedcbycacgrantorcwhocap
pointscactrusteectocmanagecthecassetscforcthecbenefitcofcthectrust’scbeneficiaries.cAnces
tateciscancentitycthatcisccreatedconcthecdeathcofcacpersoncthatcprovidescmanagementcforc
thecassetscincthecdecedent’scestatecuntilctheyccancbecdistributedctocthecbeneficiaries.cAc
grantorciscthecpersoncwhoccreatescthectrustcwhencassetscarecplacedcincthectrustcforcthecb
enefitcofcthecbeneficiaries.cThectrusteeciscthecperson
Taxation for Decision Makers 2017th Edition by Shirley Dennis-
c c c c c c c c
Escoffier, Karen A. Fortin
c c c
Chapter 1-12
c
Solutions to Chapter 1 Problem Assignments
c c c c c
CheckcYourcUnderstanding
1. [LOc1.1]ccWhatciscactax?
Solution:cActaxciscacrequiredcpaymentctocacgovernmentalcunitctocsupportcitscoperationscthatciscno
tcrelatedctocthecvaluecofcgoodscorcservicescthecpersoncorcbusinesscreceives.cAcfineciscle
viedcascacresultcofcancunlawfulcact.
2. [LOc1.1]cConstitutionalcAuthority
Solution:cThecfederalcincomectaxcsystemcascwecknowcitctodaycdidcnotcbegincuntilc1913cwhencthec
16thcAmendmentctocthecU.S.cConstitutioncwascratified.cThec16thcAmendmentcgavecC
ongresscthecpowerctoclaycandccollectctaxesc—
oncincome,cfromcwhatevercsourcecderived,‖cwithoutcthecpreviouscrequirementcthatcallc
directctaxescbecimposedcbasedc oncpopulation.
3. [LOc1.1]cCurrentcTaxcCode
Solution:cThecTaxcReformcActcofc1986cwascsocextensive,cthecCodecwascrenamedcthecInternalcR
evenuecCodecofc1986.cAnyccurrentcchangesctocthectaxclawscarecnowcamendmentsctocth
ecInternalcRevenuecCodecofc1986.
4. [LOc1.1]cTaxcExpenditures
Solution:cTaxcexpendituresccanctakecthecformcofcspecialcexclusions,cdeductions,ccreditscorcprefe
rentialcratescforcspecificcactivities.cThesectaxcexpenditurescresultcincacreductioncincthecr
evenuecthatcwouldcbeccollectedcundercacmoreccomprehensivecincomectax.
5. [LOc1.1]cSALT
Solution:cThecpracticecofcstatecandclocalctaxationcisccommonlycreferredctocascacSALTcpractice.
6. [LOc1.1]cNexus
Solution:cNexusciscthecnecessaryctypecandcdegreecofcconnectioncbetweencacbusinesscandcthecsta
tecincwhichcitcisclocatedcforcthecstatectocimposecactaxconcitscsalescorcactivities
7. [LOc1.1]cStatecIncomecTax
Solution:cWithoutcphysicalcpresencecwithincArizona,cthecstateccannotcassesscstatecincomectaxco
ncSuntancCorporation’scsalescmadectocpersonscorcbusinessesclocatedcwithincArizona.
,2
8. [LOc1.1]cFranchisecTax
Solution:cAcfranchisectaxciscancexcisectaxcbasedconcthecrightctocdocbusinesscorcowncpropertycincacs
tate.cItciscusuallycdeterminedcbasedconccorporatecincome,chowever,csocwould,cinceffect
,csimplycbecanothercnamecforcancincomectax.
9. [LOc1.1]cStatecIncomecAllocation
Solution:cThecthree-
factorcallocationcformulacusescacpercentagecofccorporatecsales,cpayrollccosts,candctang
iblecpropertycallocatedctocthecstate.
10. [LOc1.1]cEmploymentcTaxes
Solution:cAncemployeecpayscthecSocialcSecuritycandcMedicarec(FICA)ctax;cthecemployercalsocp
ayscancequivalentcSocialcSecuritycandcMedicarec(FICA)ctax,cbutcthecemployercalsocma
ychavectocpaycancunemploymentctax.
11. [LOc1.1]cWealthcTaxes
Solution:cThecmostccommoncwealthctaxciscthecrealcpropertyctaxcbasedconcthecfaircmarketcvaluecofc
propertycownedcbycancindividualcorcacbusiness.
12. [LOc1.1]cIntangiblecTax
Solution:cThecintangiblectaxciscleviedconcintangiblecpropertycsuchcascreceivables,cstocks,cbond
s,candcothercformscofcinvestmentcinstrumentscownedcbycbusinessescandcindividuals.
13. [LOc1.1]cEstatecandcGiftcTax
Solution:cPropertycthatciscgivencawaycduringcaclifetimecthatcexceedscancannualcallowancecpercdo
neeciscsubjectctocacgiftctax;chowever,ctheclifetimecexemptioncpreventscmostcgiftscfromc
beingcsubjectctocthisctax.cOnce,chowever,ctaxablecgiftscexceedctheclifetimecexemption
,cgiftscarecsubjectctocthecgiftctax.cWhencthecpersoncpassescaway,cthecremainingcpropert
ycownedcatcdeathc(notcpreviouslycgivencaway)ciscnowcsubjectctocthecestatectax.cAnycgi
ftctaxcexemptioncnotcusedcpreviouslycbycthecdecedentciscthencavailablecascancexempti
oncfromcthecestatectax.cThus,cacdecedent’scestatecescapesctaxationcunlesschiscorcherctot
alclifetimectaxablecgiftscplusctaxablectransferscatcdeathcexceedctheclifetimecexemption
.
14. [LOc1.1]cConsumptioncvscIncomecTax
Solution:cAcconsumptionctaxciscleviedconcpurchasescofcgoodscorcservicescthatcarecgoingctocbecus
edcorcconsumed.cThecmostccommoncconsumptionctaxciscthecsalesctax,cbutcthecvalue-
addedctaxciscanothercformcusedcincmanyccountriescoutsidecthecUnitedcStates.cThecinco
mectaxciscbasedconcthecvaluecofcmoneycorcgoodscthatcarecreceived,cwhethercitciscspentco
rcsaved.cAncincomectaxcwillctaxcmoneycthatciscgoingctocbecsavedcrathercthancspentcwhi
lecthecconsumptionctaxconlyctaxescmoneycthatciscspent.cThecconsumptionctaxciscthoug
htctocencouragecsavings.
15. [LOc1.1]cWealthcTaxes
Solution:cAcwealthctaxciscbasedconcthecvaluecofcwealthcthatcacpersonchascatcacparticularcpoint
, Chapterc1:cAncIntroductionctocTaxationc3
inctime.cThecrealcorcpersonalcpropertyctaxescarecwealthctaxes.cThecwealthctransferctaxc
iscbasedconcthecvaluecofcmoneycorcpropertycthatciscpassedconctocanothercperson.cTheces
tate,cgift,candcinheritancectaxescarecwealthctransferctaxes.
16. [LOc1.1]cUsecTaxes
Solution:cAcusectaxciscaccompanionctaxctocacsalesctaxcthatciscimposedconcpropertyctocbecusedcinco
necstatecbutcwhichcwascpurchasedcincanothercstatectocwhichcnocsalesctaxcwascpaidconct
hecpurchase.
17. [LOc1.1]cIncomecTaxes
Solution:cTwocsinglecpersonscwithctaxablecincomecofc$76,550ceachcwillcpaycthecsamectotalctaxcas
cacmarriedccouplecwithctaxablecincomecofc$153,100.cAbovec$153,100cthecmarriedccou
ple’scratecincreasesctoc28%cbutceachcofcthecsinglecpersonscdoescnotcreachcthatcratecuntil
ctaxablecincomeciscoverc$91,900.
18. [LOc1.2]cTypescofcTaxes
Solution:cThecincomectaxcsystemcincthecUnitedcStatesciscacprogressivecsystem;cthatcis,cascincome
cincreases,cthectaxcratecincreasescandcthecpersoncpayscacgreatercpercentagecofcincomeca
scactax.cAcpersoncwhochasc$9,000cofctaxablecincomecwillcpayc$900cinctaxesc(10%).cAcp
ersoncwhocmakesc$18,000cwillcpayc$2,233.75c($932.50c+c.15c($18,000c-
$9,325).c$2,233.75/$18,000c=c12.41%.cAcregressivectaxcsystemcimposescaclowerctaxcr
atecascincomecincreases;cthatcis,cacpersoncpayscacdecreasingcpercentagecofctheircincome
cinctaxescascincomecincreases.cThecSocialcSecuritycportioncofcthecFICActaxciscacregressi
vectax;cascthectaxpayer’scincomeconcwhichcthectaxciscbasedcexceedscacmaximum,cthecta
xciscnoclongerccollectedcandcthecratecdeclines.cAcproportionalctaxcwouldccollectcthecsa
mecpercentagecofctaxconcthectaxcbase,cregardlesscofcthecsizecofcthecbase.cThecsalesctaxci
scacproportionalctaxcascthecsamecpercentctaxcisccollectedcregardlesscofcthecamountcspen
t.
19. [LOc1.2]cIncomecTaxcRates
Solution:cIndividualschavecbasicctaxcratescofc10%,c15%,c25%,c28%,c33%,c35%,candc39.6%cthatca
pplyctoctheircordinarycincomecandctheircinterestcincome.cThecbasicctaxcratescforctheircdi
videndcincomecarec0%,c15%,candc20%.cCorporationschavecnoctax-
favoredcincomescsoctheycpayctaxconcallcincomecatcratescofc15%,c25%,c34%,candc35%,ce
xcludingcsurtaxesconccertaincportionscofcincomecthatcultimatelycproducecacflatctaxcofc3
5%concincomecabovec$18,333,333.
20. [LOc1.2]cIncomecTaxcRates
Solution:cIndividual’scshort-
termccapitalcgainsctaxcratescarecthecsamecascthectaxcratesconcordinarycincome.cAcsinglec
individual’sclong-termccapitalcgainscratescarec0%con
long-termccapitalcgainsc(LTCG)cfromc0ctoc$37,950;c15%concLTCGcfromc$37,951cto
$418,400,candc20%concLTCGcexceedingc$418,400.
21. [LOc1.3]cCanonscofcTaxation
Solution:cThecbasiccideacofcequityciscthatcpersonscwithcsimilarcincomescwillcfacecsimilarctaxes.cT
hus,cindividualsceachcwithc$200,000cinctaxablecincomecwillcpaycthecsamecamount
, 4
ofctax.cActaxcmeetsctheccriterioncofceconomycwhencthecamountcofcrevenuecitcraisesciscatc
ancoptimumclevelcafterctheccostscofcadministrationcandccompliancecarec considered.cT
heccanoncofccertaintycwouldcdictatecthatcactaxpayercknowcwithcreasonablecaccuracycth
ectaxcconsequencescofcactransactioncatcthectimecthectransactionctakescplace.cTheclastcca
noncofcconveniencecstatescthatcacconvenientctaxc isconecthatcwouldcbecreadilycdetermin
edcandcpaidcwithclittleceffort.
22. [LOc1.3]cEquitycConcepts
Solution:cHorizontalcequitycwouldcrequirecpersonscwithcequalcincomescpaycequalcamountscofctax
es.cVerticalcequitycwouldcrequirecpersonscwithchighercincomesctocpaycachighercpercent
agecofctheircincomecthancpersonscwithclowercincomes.cThisciscthecbasiscofcthe
U.S.ctaxcsystem.
23. [LOc1.4]cTaxablecPersons
Solution:cOnlycindividuals,cregularc(orcC)ccorporations,candcfiduciariesc(estatescandctrusts)cpayc
incomectaxes.
24. [LOc1.4]cGrosscIncome
Solution:cThectermcgrosscincomeciscancall-
inclusivectermcthatcincludescincomecfromcallcsourcescthatcarecnotcspecificallycexclude
d.
25. [LOc1.4]cBasiccTaxcModel
Solution:cThecbasiccelementscofcthectaxcmodelcarecgrosscincome,clesscdeductions,cthatcequalctaxa
blecincomecorcloss.cThecapplicablectaxcrateciscappliedctocthisctocdeterminecthecgrossctaxc
liability.cFromcthisctaxccreditscandcprepaymentscarecdeductedctocdeterminecthectaxcliabi
litycowedcorcthecrefundcdue.
26. [LOc1.4]cCapitalcLosses
Solution:cAncindividualcmaycdeductcupctoc$3,000cofccapitalclossescincexcesscofccapitalcgainscann
ually;cthecexcesscmaycbeccarriedcforwardcindefinitelyctocsucceedingcyears.cAccorporati
onccanconlycoffsetccapitalclossescagainstccapitalcgains;clossescarecnotcdeductiblecagains
tcothercincome.cInsteadctheccorporationcfirstccarriesctheclossescbackctocthecthreecpreviou
scyearscandcthencforwardcforc5cyears.
27. [LOc1.4]cBasiccIncomecTaxcRates
Solution:cIndividualschavecbasicctaxcratescofc10%,c15%,c25%,c28%,c33%,c35%,candc39.6%cthatc
arecappliedctoctheircordinarycincome.cAccorporation’scbasicctaxcratescarec15%,c25%,c3
4%,candc35%,cexcludingcsurtaxes.
28. [LOc1.4]cFiduciaries
Solution:cTrustscandcestatescarectwocfiduciarycentities;cactrustciscestablishedcbycacgrantorcwhocap
pointscactrusteectocmanagecthecassetscforcthecbenefitcofcthectrust’scbeneficiaries.cAnces
tateciscancentitycthatcisccreatedconcthecdeathcofcacpersoncthatcprovidescmanagementcforc
thecassetscincthecdecedent’scestatecuntilctheyccancbecdistributedctocthecbeneficiaries.cAc
grantorciscthecpersoncwhoccreatescthectrustcwhencassetscarecplacedcincthectrustcforcthecb
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