Solution Manual for McGraw-Hill's Taxation of
Individuals 2024 Edition, 15th Edition
By Brian Spilker, Benjamin Ayers, All Chapters 1 - 14
,TABLE OF CONTENTS
13 13 13
Part13I:13Introduction13to13Taxation
Chapter131:13An13Introduction13to13Tax
Chapter132:13Tax13Compliance,13the13IRS,13and13Tax13Authorities
Chapter133:13Tax13Planning13Strategies13and13Related13Limitations
Part13II:13Basic13Individual13Taxation
Chapter134:13Individual13Income13Tax13Overview,13Dependents,13and13Filing13Status
Chapter135:13Gross13Income13and13Exclusions
Chapter136:13Individual13Deductions
Chapter137:13Investments
Chapter138:13Individual13Income13Tax13Computation13and13Tax13Credits
Part13III:13Business-Related13Transactions
Chapter139:13Business13Income,13Deductions,13and13Accounting13Methods
Chapter1310:13Property13Acquisition13and13Cost13Recovery
Chapter1311:13Property13Dispositions
Part13IV:13Specialized13Topics
Chapter1312:13Compensation
Chapter1313:13Retirement13Savings13and13Deferred13Compensation
Chapter1314:13Tax13Consequences13of13Home13Ownership
,Chapter131
An13Introduction13to13Tax
Discussion13Questions
(1) [LO131]13Jessica’s13friend13Zachary13once13stated13that13he13couldn’t13understand13why
someone13would13take13a13tax13course.13Why13is13this13a13rather13naïve13view?
Taxes13are13a13part13of13everyday13life13and13have13a13financial13effect13on13many13of13the13major1 3 person
al13decisions13that13individuals13face13(e.g.,13investment13decisions,13evaluating1 3 alternative13job13offers
,13saving13for13education13expenses,13gift13or13estate13planning,13etc.).
(2) [LO131]13What13are13some13aspects13of13business13that13require13knowledge13of13taxation?1
3 What13are13some13aspects13of13personal13finance13that13require13knowledge13of13taxation?
Taxes13play13an13important13role13in13fundamental13business13decisions13such13as13the1 3 following:
What13organizational13form13should13a13business13use?
Where13should13the13business13locate?
How13should13business13acquisitions13be13structured?
How13should13the13business13compensate13employees?
What13is13the13appropriate13mix13of13debt13and13equity13for13the13business?
Should13the13business13rent13or13own13its13equipment13and13property?
How13should13the13business13distribute13profits13to13its13owners?
One13must13consider13all13transaction13costs13(including13taxes)13to13evaluate13the13merits13of1 3 a13transact
ion.
Common13personal13financial13decisions13that13taxes13influence13include:13choosing1 3 investments,13retire
ment13planning,13choosing13to13rent13or13buy13a13home,13evaluating1 3 alternative13job13offers,13saving13fo
r13education13expenses,13and13doing13gift13or13estate1 3 planning.
(3) [LO131]13Describe13some13ways13in13which13taxes13affect13the13political13process13in13the1
3 United13States.
U.S.13presidential13candidates13often13distinguish13themselves13from13their13opponents
, based13upon13their13tax13rhetoric.13Likewise,13the13major13political13parties13generally13have1 3 very13divers
e13views13of13the13appropriate13way13to13tax13the13public.13Determining13who13is1 3 taxed,13what13is13taxed,
13and13how13much13is13taxed13are13difficult13questions.13Voters13must1 3 have13a13basic13understanding13of13
taxes13to13evaluate13the13merits13of13alternative13tax1 3 proposals13offered13by13opposing13political13candid
ates13and13their13political13parties.
(4) [LO132]13Courtney13recently13received13a13speeding13ticket13on13her13way13to13the13university.
1 3 Her13fine13was13$200.13Is13this13considered13a13tax?13Why13or13why13not?
The13$20013speeding13ticket13is13not13considered13a13tax.13Instead,13it13is13considered13a13fine1 3 or13pen
alty.13Taxes13differ13from13fines13and13penalties13because13taxes13are13not13intended1 3 to13punish13or13p
revent13illegal13behavior.
(5) [LO132]13Marlon13and13Latoya13recently13started13building13a13house.13They13had13to13pay
$30013to13the13county13government13for13a13building13permit.13Is13the13$30013payment13a13tax?1
3 Why13or13why13not?
The13building13permit13is13not13considered13a13tax13because13$30013payment13is13directly1 3 linked13to13a13b
enefit13that13they13received13(i.e.,13the13ability13to13build13a13house).
(6) [LO132]13To13help13pay13for13the13city’s13new13stadium,13the13city13of13Birmingham13recently
1 3 enacted13a13113percent13surcharge13on13hotel13rooms.13Is13this13a13tax?13Why13or13why13not
?
The13113percent13surcharge13is13a13tax.13The13113percent13surcharge13is13an13earmarked13tax13–
1 3 i.e.,13collected13for13a13specific13purpose.13The13surcharge13is13considered13a13tax13because1 3 the13tax13pa
yments13made13by13taxpayers13do13not13directly13relate13to13the13specific13benefit1 3 received13by13the13taxpa
yers.
(7) [LO132]13As13noted13in13Example131-
2,13tolls,13parking13meter13fees,13and13annual13licensing1 3 fees13are13not13considered13taxes.13
Can13you13identify13other13fees13that13are13similar?
There13are13several13possible13answers13to13this13question.13Some13common13examples1 3 include13entrance
13fees13to13national13parks,13tag13fees13paid13to13local/state13government1 3 for13automobiles,13boats,13etc
.
(8) [LO132]13If13the13general13objective13of13our13tax13system13is13to13raise13revenue,13why13does13th
e1 3 income13tax13allow13deductions13for13charitable13contributions13and13retirement13plan1 3 co
ntributions?
In13addition13to13the13general13objective13of13raising13revenue,13Congress13uses13the13federal1 3 tax13system1
3to13encourage13certain13behavior13and13discourage13other13behavior.13The1 3 charitable13contribution13de
duction13is13intended13to13encourage13taxpayers13to13support1 3 the13initiatives13of13charitable13organizati
ons,13whereas13deductions13for13retirement1 3 contributions13are13intended13to13encourage13retirement13sav
ings.13Another13objective13of1 3 the13tax13system13is13to13redistribute13wealth.
Individuals 2024 Edition, 15th Edition
By Brian Spilker, Benjamin Ayers, All Chapters 1 - 14
,TABLE OF CONTENTS
13 13 13
Part13I:13Introduction13to13Taxation
Chapter131:13An13Introduction13to13Tax
Chapter132:13Tax13Compliance,13the13IRS,13and13Tax13Authorities
Chapter133:13Tax13Planning13Strategies13and13Related13Limitations
Part13II:13Basic13Individual13Taxation
Chapter134:13Individual13Income13Tax13Overview,13Dependents,13and13Filing13Status
Chapter135:13Gross13Income13and13Exclusions
Chapter136:13Individual13Deductions
Chapter137:13Investments
Chapter138:13Individual13Income13Tax13Computation13and13Tax13Credits
Part13III:13Business-Related13Transactions
Chapter139:13Business13Income,13Deductions,13and13Accounting13Methods
Chapter1310:13Property13Acquisition13and13Cost13Recovery
Chapter1311:13Property13Dispositions
Part13IV:13Specialized13Topics
Chapter1312:13Compensation
Chapter1313:13Retirement13Savings13and13Deferred13Compensation
Chapter1314:13Tax13Consequences13of13Home13Ownership
,Chapter131
An13Introduction13to13Tax
Discussion13Questions
(1) [LO131]13Jessica’s13friend13Zachary13once13stated13that13he13couldn’t13understand13why
someone13would13take13a13tax13course.13Why13is13this13a13rather13naïve13view?
Taxes13are13a13part13of13everyday13life13and13have13a13financial13effect13on13many13of13the13major1 3 person
al13decisions13that13individuals13face13(e.g.,13investment13decisions,13evaluating1 3 alternative13job13offers
,13saving13for13education13expenses,13gift13or13estate13planning,13etc.).
(2) [LO131]13What13are13some13aspects13of13business13that13require13knowledge13of13taxation?1
3 What13are13some13aspects13of13personal13finance13that13require13knowledge13of13taxation?
Taxes13play13an13important13role13in13fundamental13business13decisions13such13as13the1 3 following:
What13organizational13form13should13a13business13use?
Where13should13the13business13locate?
How13should13business13acquisitions13be13structured?
How13should13the13business13compensate13employees?
What13is13the13appropriate13mix13of13debt13and13equity13for13the13business?
Should13the13business13rent13or13own13its13equipment13and13property?
How13should13the13business13distribute13profits13to13its13owners?
One13must13consider13all13transaction13costs13(including13taxes)13to13evaluate13the13merits13of1 3 a13transact
ion.
Common13personal13financial13decisions13that13taxes13influence13include:13choosing1 3 investments,13retire
ment13planning,13choosing13to13rent13or13buy13a13home,13evaluating1 3 alternative13job13offers,13saving13fo
r13education13expenses,13and13doing13gift13or13estate1 3 planning.
(3) [LO131]13Describe13some13ways13in13which13taxes13affect13the13political13process13in13the1
3 United13States.
U.S.13presidential13candidates13often13distinguish13themselves13from13their13opponents
, based13upon13their13tax13rhetoric.13Likewise,13the13major13political13parties13generally13have1 3 very13divers
e13views13of13the13appropriate13way13to13tax13the13public.13Determining13who13is1 3 taxed,13what13is13taxed,
13and13how13much13is13taxed13are13difficult13questions.13Voters13must1 3 have13a13basic13understanding13of13
taxes13to13evaluate13the13merits13of13alternative13tax1 3 proposals13offered13by13opposing13political13candid
ates13and13their13political13parties.
(4) [LO132]13Courtney13recently13received13a13speeding13ticket13on13her13way13to13the13university.
1 3 Her13fine13was13$200.13Is13this13considered13a13tax?13Why13or13why13not?
The13$20013speeding13ticket13is13not13considered13a13tax.13Instead,13it13is13considered13a13fine1 3 or13pen
alty.13Taxes13differ13from13fines13and13penalties13because13taxes13are13not13intended1 3 to13punish13or13p
revent13illegal13behavior.
(5) [LO132]13Marlon13and13Latoya13recently13started13building13a13house.13They13had13to13pay
$30013to13the13county13government13for13a13building13permit.13Is13the13$30013payment13a13tax?1
3 Why13or13why13not?
The13building13permit13is13not13considered13a13tax13because13$30013payment13is13directly1 3 linked13to13a13b
enefit13that13they13received13(i.e.,13the13ability13to13build13a13house).
(6) [LO132]13To13help13pay13for13the13city’s13new13stadium,13the13city13of13Birmingham13recently
1 3 enacted13a13113percent13surcharge13on13hotel13rooms.13Is13this13a13tax?13Why13or13why13not
?
The13113percent13surcharge13is13a13tax.13The13113percent13surcharge13is13an13earmarked13tax13–
1 3 i.e.,13collected13for13a13specific13purpose.13The13surcharge13is13considered13a13tax13because1 3 the13tax13pa
yments13made13by13taxpayers13do13not13directly13relate13to13the13specific13benefit1 3 received13by13the13taxpa
yers.
(7) [LO132]13As13noted13in13Example131-
2,13tolls,13parking13meter13fees,13and13annual13licensing1 3 fees13are13not13considered13taxes.13
Can13you13identify13other13fees13that13are13similar?
There13are13several13possible13answers13to13this13question.13Some13common13examples1 3 include13entrance
13fees13to13national13parks,13tag13fees13paid13to13local/state13government1 3 for13automobiles,13boats,13etc
.
(8) [LO132]13If13the13general13objective13of13our13tax13system13is13to13raise13revenue,13why13does13th
e1 3 income13tax13allow13deductions13for13charitable13contributions13and13retirement13plan1 3 co
ntributions?
In13addition13to13the13general13objective13of13raising13revenue,13Congress13uses13the13federal1 3 tax13system1
3to13encourage13certain13behavior13and13discourage13other13behavior.13The1 3 charitable13contribution13de
duction13is13intended13to13encourage13taxpayers13to13support1 3 the13initiatives13of13charitable13organizati
ons,13whereas13deductions13for13retirement1 3 contributions13are13intended13to13encourage13retirement13sav
ings.13Another13objective13of1 3 the13tax13system13is13to13redistribute13wealth.
