AN INTRODUCTION TO TAXATION

Solutions Manual for South-Western Federal Taxation 2023 Comprehensive, 46e James Young, Annette Nellen, David Maloney, Mark Persellin, Andrew Cuccia, Sharon Lassar, Brad Cripe (All Chapters Download link at the end of this file) 1 / 2

CHAPTER 1

AN INTRODUCTION TO TAXATION

AND UNDERSTANDING THE FEDERAL TAX LAW

SOLUTIONS TO PROBLEM MATERIALS

DISCUSSION QUESTIONS

1.(LO 1) Various answers are possible, including using the Key Terms at the 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)

• John must now document rental receipts

and separate his home expenses between personal and rental use, and he may be subject to the transient occupancy tax.

• 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.

• Paul’s

employer might have some moving expenses that it can deduct (in general, Paul cannot deduct moving expenses).Paul’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 depreciation 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 income tax was 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 specified 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 principles.1-1 .

• / 2