346Sim02 - Links to Worksheets in File Introduction Questions Analysis Objectives Outcomes The objective of this computerized tax simulation is to help

346Sim02 - Links to Worksheets in File Introduction...

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Links to Worksheets in File Facts Issue Introduction Questions Analysis Regina is a single, cash basis taxpayer with a calendar year tax reporting period. At the beginning of the current year, she sold some property (not a capital asset) in which she had a basis of $60,000. She realized $200,000 on this sale which the buyer will pay in four equal payments. The first payment will be made at the end of the current year and subsequent payments will be made at the end of each of the three following years. She anticipates that her marginal tax rates on the income over those four years will be 35%, 30%, 25%, and 20%, respectively. How should Regina report the profit from this sale, assuming that she has a 10% discount rate? Authorities Internal Revenue Code (IRC) §1 imposes a tax on an individual's taxable income. IRC §63 defines taxable income to mean gross income, which generally includes all income from whatever source derived (per §61) minus allowable deductions. Section 453 mandates the use of the installment method (as defined in §453(c)) of reporting income from qualifying transactions. However, §453(d) allows the taxpayer to elect out of the installment method and report all of the income in the year of the sale (regardless of when cash is received). Objectives & Outcomes The objective of this computerized tax simulation is to help you learn how tax planning for income is affected by changes to a taxpayer's marginal tax rates over time. To accomplish this objective, you must -read the Facts, Issues, & Authorities sections below, -use the related Excel spreadsheet to analyze the taxpayer's facts, given the tax law
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