Discussion Questions

1-1 Chapter 1—The Professional Practice of Taxation End-of-Chapter Solutions

Discussion Questions

1.

Title: Discussion Question 1

Difficulty: Easy

Learning Objective 1: 1.1

Standard 1: AACSB || Knowledge

Standard 2: AICPA || AC: Reporting

Standard 3: Bloom's || Knowledge

Section Reference 1: 1.1

Solution:

The goal of tax planning is to maximize after-tax income. After-tax income is net income after reducing revenue for all expenses including federal income taxes. Tax planning should consider tax factors as well as non-tax factors.

Time On Task: 2 minutes

2.

Title: Discussion Question 2

Difficulty: Easy

Learning Objective 1: 1.2

Standard 1: AACSB || Knowledge

Standard 2: AICPA || AC: Reporting

Standard 3: Bloom's || Knowledge

Section Reference 1: 1.2

Solution:

The formula to calculate an individual’s taxable income is as follows:

Gross income

Less: Deductions for Adjusted Gross Income

Adjusted Gross Income

Less: Greater of Standard Deduction or Itemized Deductions

Less: Qualified Business Income Deduction

Taxable income

Time On Task: 2 minutes

3.

Title: Discussion Question 3

Difficulty: Easy

Learning Objective 1: 1.2

Standard 1: AACSB || Knowledge

Standard 2: AICPA || AC: Reporting

Standard 3: Bloom's || Knowledge

Section Reference 1: 1.2

(Fundamentals of Taxation for Individuals A Practical Approach, 2024 Edition By Gregory Carnes, Suzanne Youngberg) (Solution Manual, For Complete File, Download link at the end of this File) 1 / 4

1-2

Solution:

Form 1040 is used to file an individual’s income tax return information. Form 1040SR can be used by those 65 and older.

Time On Task: 1 minute

4.

Title: Discussion Question 4

Difficulty: Medium

Learning Objective 1: 1.3

Standard 1: AACSB || Knowledge

Standard 2: AICPA || AC: Reporting

Standard 3: Bloom's || Knowledge

Section Reference 1: 1.3

Solution:

A lower-income taxpayer needs every after-tax dollar earned to pay bills and does not have much discretionary income. If the income tax rate increases, the lower-income taxpayer may have to work more hours at their current job or take on another job to have the same amount of after-tax income. A wealthier taxpayer may view the increased tax rate adversely but has more flexibility with their discretionary income. The wealthier taxpayer may view their leisure time as more important than working extra hours to earn the same after-tax pay.

Time On Task: 4 minutes

5.

Title: Discussion Question 5

Difficulty: Easy

Learning Objective 1: 1.3

Standard 1: AACSB || Knowledge

Standard 2: AICPA || AC: Reporting

Standard 3: Bloom's || Knowledge

Section Reference 1: 1.3

Solution:

Tax planning is the process of estimating an individual’s tax liability for multiple scenarios and/or multiple years and considering ways to reduce it. The appropriate goal for tax planning is to maximize after-tax income. After-tax income is net income after reducing revenue for all expenses including federal income taxes. Tax compliance is determining the tax effects for transactions that have already occurred, including the preparation of tax returns.

Time On Task: 4 minutes

6.

Title: Discussion Question 6

Difficulty: Medium

Learning Objective 1: 1.3

Standard 1: AACSB || Knowledge

Standard 2: AICPA || AC: Reporting

Standard 3: Bloom's || Knowledge 2 / 4

1-3

Section Reference 1: 1.3

Solution:

An open transaction means that the proposed transaction is not yet completed. A closed transaction means that the relevant events have already happened, and the facts are set. This distinction is important because in an open transaction, the facts and results can be changed to achieve a better outcome. A closed transaction does not allow for this.

Time On Task: 3 minutes

7.

Title: Discussion Question 7

Difficulty: Easy

Learning Objective 1: 1.3

Standard 1: AACSB || Knowledge

Standard 2: AICPA || AC: Reporting

Standard 3: Bloom's || Knowledge

Section Reference 1: 1.3

Solution:

The marginal tax rate is the rate that applies to the next additional dollar earned. The average tax rate is total income tax divided by taxable income. The effective tax rate is total income tax divided by total income.

Time On Task: 3 minutes

8.

Title: Discussion Question 8

Difficulty: Medium

Learning Objective 1: 1.3

Standard 1: AACSB || Analytic

Standard 2: AICPA || AC: Measurement Analysis and Interpretation

Standard 3: Bloom's || Application

Section Reference 1: 1.3

Solution:

If a taxpayer is in a higher tax bracket in the current year and expects to be in a lower tax bracket next year, he would have tax savings from delaying the receipt of income to next year. If the current year’s tax rate is higher, he would receive more tax benefit from accelerating deductible expenses into the current year rather than waiting until the next year when the marginal tax rate would be less.

Time On Task: 4 minutes

9.

Title: Discussion Question 9

Difficulty: Easy

Learning Objective 1: 1.3

Standard 1: AACSB || Analytic

Standard 2: AICPA || AC: Measurement Analysis and Interpretation

Standard 3: Bloom's || Application

Section Reference 1: 1.3 3 / 4

1-4

Solution:

It would be better to accelerate income into the current year if the taxpayer’s current income tax rate is less than it will be in future years.

Time On Task: 2 minutes

10.

Title: Discussion Question 10

Difficulty: Easy

Learning Objective 1: 1.3

Standard 1: AACSB || Knowledge

Standard 2: AICPA || AC: Reporting

Standard 3: Bloom's || Knowledge

Section Reference 1: 1.3

Solution:

Three of the following tax planning opportunities are:

• rates vary across different time periods • rates vary across different jurisdictions • rates vary across different types of income, and • rates vary across different types of taxpayers.

Time On Task: 3 minutes

11.

Title: Discussion Question 11

Difficulty: Medium

Learning Objective 1: 1.3

Standard 1: AACSB || Analytic

Standard 2: AICPA || AC: Measurement Analysis and Interpretation

Standard 3: Bloom's || Application

Section Reference 1: 1.3

Solution:

Tax rates may vary across different jurisdictions. This will result in more or less after-tax cash flow. The revenue generated may be the same, but the after-tax cash flow could be substantially different.

Time On Task: 3 minutes

12.

Title: Discussion Question 12

Difficulty: Medium

Learning Objective 1: 1.3

Standard 1: AACSB || Analytic

Standard 2: AICPA || AC: Measurement Analysis and Interpretation

Standard 3: Bloom's || Application

Section Reference 1: 1.3

Solution:

It is important to identify the character of the income earned because it is possible that different rates apply across the income types. Also, some character types may limit the amount of

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