Solutions Manual—
2w
Taxation of Individuals, by Spilker et al.
SOLUTION MANUAL FOR 2w 2w
McGraw-
©2wMcGraw2wHill2wLLC.2wAll2wrights2wreserved.2wNo2wreproduction2wor2wdistribution2wwithout2wthe2wprior2wwritten2wconsent2wof2wMcGraw2wHil
l2wLLC.
1
, Solutions Manual— 2w
Taxation of Individuals, by Spilker et al.
Chapter 1 2w
An Introduction to Tax
2w 2w 2w
Discussion Questions 2w
(1) [LO 1] Jessica’s friend Zachary once stated that he couldn’t understand why
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
someone would take a tax course. Why is this a rather naïve view?
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
Taxes are a part of everyday life and have a financial effect on many of the
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
major personal decisions that individuals face (e.g., investment decisions, eval
2w 2w 2w 2w 2w 2w 2w 2w 2w
uating alternative job offers, saving for education expenses, gift or estate plan
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ning, etc.). 2w
(2) [LO 1] What are some aspects of business that require knowledge of taxat
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ion? What are some aspects of personal finance that require knowledge of
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
taxation?
Taxes play an important role in fundamental business decisions such as the fol
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
lowing:
What organizational form should a business use?
2w 2w 2w 2w 2w 2w
Where should the business locate? 2w 2w 2w 2w
How should business acquisitions be structured?
2w 2w 2w 2w 2w
How should the business compensate employees?
2w 2w 2w 2w 2w
What is the appropriate mix of debt and equity for the business?
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
Should the business rent or own its equipment and property?
2w 2w 2w 2w 2w 2w 2w 2w 2w
How should the business distribute profits to its owners?
2w 2w 2w 2w 2w 2w 2w 2w
One must consider all transaction costs (including taxes) to evaluate the merit
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
s of a transaction.
2w 2w 2w
Common personal financial decisions that taxes influence include: choosing in
2w 2w 2w 2w 2w 2w 2w 2w 2w
vestments, retirement planning, choosing to rent or buy a home, evaluating alt
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ernative job offers, saving for education expenses, and doing gift or estate pla
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
nning.
(3) [LO 1] Describe some ways in which taxes affect the political process i
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
n the United States.
2w 2w 2w
U.S. presidential candidates often distinguish themselves from their opponents
2w 2w 2w 2w 2w 2w 2w 2w
©2wMcGraw2wHill2wLLC.2wAll2wrights2wreserved.2wNo2wreproduction2wor2wdistribution2wwithout2wthe2wprior2wwritten2wconsent2wof2wMcGraw2wHil
l2wLLC.
2
, Solutions Manual— 2w
Taxation of Individuals, by Spilker et al.
based upon their tax rhetoric. Likewise, the major political parties generally h
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ave very diverse views of the appropriate way to tax the public. Determining
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
who is taxed, what is taxed, and how much is taxed are difficult questions. V
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
oters must have a basic understanding of taxes to evaluate the merits of alter
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
native tax proposals offered by opposing political candidates and their politic
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
al parties.
2w
(4) [LO 2] Courtney recently received a speeding ticket on her way to the univer
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
sity. Her fine was $200. Is this considered a tax? Why or why not?
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
The $200 speeding ticket is not considered a tax. Instead, it is considered a
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2
wfine or penalty. Taxes differ from fines and penalties because taxes are not
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
intended to punish or prevent illegal behavior.
2w 2w 2w 2w 2w 2w
(5) [LO 2] Marlon and Latoya recently started building a house. They had to pay
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
$300 to the county government for a building permit. Is the $300 payment a
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2
tax? Why or why not?
w 2w 2w 2w 2w
The building permit is not considered a tax because $300 payment is directly l
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
inked to a benefit that they received (i.e., the ability to build a house).
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
(6) [LO 2] To help pay for the city’s new stadium, the city of Birmingham rec
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ently enacted a 1 percent surcharge on hotel rooms. Is this a tax? Why or
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
why not? 2w
The 1 percent surcharge is a tax. The 1 percent surcharge is an earmarked ta
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
x– 2w
i.e., collected for a specific purpose. The surcharge is considered a tax beca
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
use the tax payments made by taxpayers do not directly relate to the specific
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
benefit received by the taxpayers.
2w 2w 2w 2w
(7) [LO 2] As noted in Example 1-
2w 2w 2w 2w 2w 2w
2, tolls, parking meter fees, and annual licensing fees are not considered ta
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
xes. Can you identify other fees that are similar?
2w 2w 2w 2w 2w 2w 2w 2w
There are several possible answers to this question. Some common examples
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
include entrance fees to national parks, tag fees paid to local/state governm
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ent for automobiles, boats, etc.
2w 2w 2w 2w
(8) [LO 2] If the general objective of our tax system is to raise revenue, why do
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
es the income tax allow deductions for charitable contributions and retiremen
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
t plan contributions?
2w 2w
In addition to the general objective of raising revenue, Congress uses the feder
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
al tax system to encourage certain behavior and discourage other behavior. T
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
he charitable contribution deduction is intended to encourage taxpayers to su
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
©2wMcGraw2wHill2wLLC.2wAll2wrights2wreserved.2wNo2wreproduction2wor2wdistribution2wwithout2wthe2wprior2wwritten2wconsent2wof2wMcGraw2wHil
l2wLLC.
3
, Solutions Manual— 2w
Taxation of Individuals, by Spilker et al.
pport the initiatives of charitable organizations, whereas deductions for retire
2w 2w 2w 2w 2w 2w 2w 2w 2w
ment contributions are intended to encourage retirement savings. Another obje
2w 2w 2w 2w 2w 2w 2w 2w 2w
ctive of the tax system is to redistribute wealth.
2w 2w 2w 2w 2w 2w 2w 2w
©2wMcGraw2wHill2wLLC.2wAll2wrights2wreserved.2wNo2wreproduction2wor2wdistribution2wwithout2wthe2wprior2wwritten2wconsent2wof2wMcGraw2wHil
l2wLLC.
4
2w
Taxation of Individuals, by Spilker et al.
SOLUTION MANUAL FOR 2w 2w
McGraw-
©2wMcGraw2wHill2wLLC.2wAll2wrights2wreserved.2wNo2wreproduction2wor2wdistribution2wwithout2wthe2wprior2wwritten2wconsent2wof2wMcGraw2wHil
l2wLLC.
1
, Solutions Manual— 2w
Taxation of Individuals, by Spilker et al.
Chapter 1 2w
An Introduction to Tax
2w 2w 2w
Discussion Questions 2w
(1) [LO 1] Jessica’s friend Zachary once stated that he couldn’t understand why
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
someone would take a tax course. Why is this a rather naïve view?
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
Taxes are a part of everyday life and have a financial effect on many of the
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
major personal decisions that individuals face (e.g., investment decisions, eval
2w 2w 2w 2w 2w 2w 2w 2w 2w
uating alternative job offers, saving for education expenses, gift or estate plan
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ning, etc.). 2w
(2) [LO 1] What are some aspects of business that require knowledge of taxat
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ion? What are some aspects of personal finance that require knowledge of
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
taxation?
Taxes play an important role in fundamental business decisions such as the fol
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
lowing:
What organizational form should a business use?
2w 2w 2w 2w 2w 2w
Where should the business locate? 2w 2w 2w 2w
How should business acquisitions be structured?
2w 2w 2w 2w 2w
How should the business compensate employees?
2w 2w 2w 2w 2w
What is the appropriate mix of debt and equity for the business?
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
Should the business rent or own its equipment and property?
2w 2w 2w 2w 2w 2w 2w 2w 2w
How should the business distribute profits to its owners?
2w 2w 2w 2w 2w 2w 2w 2w
One must consider all transaction costs (including taxes) to evaluate the merit
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
s of a transaction.
2w 2w 2w
Common personal financial decisions that taxes influence include: choosing in
2w 2w 2w 2w 2w 2w 2w 2w 2w
vestments, retirement planning, choosing to rent or buy a home, evaluating alt
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ernative job offers, saving for education expenses, and doing gift or estate pla
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
nning.
(3) [LO 1] Describe some ways in which taxes affect the political process i
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
n the United States.
2w 2w 2w
U.S. presidential candidates often distinguish themselves from their opponents
2w 2w 2w 2w 2w 2w 2w 2w
©2wMcGraw2wHill2wLLC.2wAll2wrights2wreserved.2wNo2wreproduction2wor2wdistribution2wwithout2wthe2wprior2wwritten2wconsent2wof2wMcGraw2wHil
l2wLLC.
2
, Solutions Manual— 2w
Taxation of Individuals, by Spilker et al.
based upon their tax rhetoric. Likewise, the major political parties generally h
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ave very diverse views of the appropriate way to tax the public. Determining
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
who is taxed, what is taxed, and how much is taxed are difficult questions. V
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
oters must have a basic understanding of taxes to evaluate the merits of alter
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
native tax proposals offered by opposing political candidates and their politic
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
al parties.
2w
(4) [LO 2] Courtney recently received a speeding ticket on her way to the univer
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
sity. Her fine was $200. Is this considered a tax? Why or why not?
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
The $200 speeding ticket is not considered a tax. Instead, it is considered a
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2
wfine or penalty. Taxes differ from fines and penalties because taxes are not
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
intended to punish or prevent illegal behavior.
2w 2w 2w 2w 2w 2w
(5) [LO 2] Marlon and Latoya recently started building a house. They had to pay
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
$300 to the county government for a building permit. Is the $300 payment a
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2
tax? Why or why not?
w 2w 2w 2w 2w
The building permit is not considered a tax because $300 payment is directly l
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
inked to a benefit that they received (i.e., the ability to build a house).
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
(6) [LO 2] To help pay for the city’s new stadium, the city of Birmingham rec
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ently enacted a 1 percent surcharge on hotel rooms. Is this a tax? Why or
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
why not? 2w
The 1 percent surcharge is a tax. The 1 percent surcharge is an earmarked ta
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
x– 2w
i.e., collected for a specific purpose. The surcharge is considered a tax beca
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
use the tax payments made by taxpayers do not directly relate to the specific
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
benefit received by the taxpayers.
2w 2w 2w 2w
(7) [LO 2] As noted in Example 1-
2w 2w 2w 2w 2w 2w
2, tolls, parking meter fees, and annual licensing fees are not considered ta
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
xes. Can you identify other fees that are similar?
2w 2w 2w 2w 2w 2w 2w 2w
There are several possible answers to this question. Some common examples
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
include entrance fees to national parks, tag fees paid to local/state governm
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
ent for automobiles, boats, etc.
2w 2w 2w 2w
(8) [LO 2] If the general objective of our tax system is to raise revenue, why do
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
es the income tax allow deductions for charitable contributions and retiremen
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
t plan contributions?
2w 2w
In addition to the general objective of raising revenue, Congress uses the feder
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
al tax system to encourage certain behavior and discourage other behavior. T
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
he charitable contribution deduction is intended to encourage taxpayers to su
2w 2w 2w 2w 2w 2w 2w 2w 2w 2w
©2wMcGraw2wHill2wLLC.2wAll2wrights2wreserved.2wNo2wreproduction2wor2wdistribution2wwithout2wthe2wprior2wwritten2wconsent2wof2wMcGraw2wHil
l2wLLC.
3
, Solutions Manual— 2w
Taxation of Individuals, by Spilker et al.
pport the initiatives of charitable organizations, whereas deductions for retire
2w 2w 2w 2w 2w 2w 2w 2w 2w
ment contributions are intended to encourage retirement savings. Another obje
2w 2w 2w 2w 2w 2w 2w 2w 2w
ctive of the tax system is to redistribute wealth.
2w 2w 2w 2w 2w 2w 2w 2w
©2wMcGraw2wHill2wLLC.2wAll2wrights2wreserved.2wNo2wreproduction2wor2wdistribution2wwithout2wthe2wprior2wwritten2wconsent2wof2wMcGraw2wHil
l2wLLC.
4
