DennisSolutionsCh1 - Chapter 1 An Introduction to Taxation...

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Chapter 1: An Introduction to Taxation 1 Solutions to Chapter 1 Problem Assignments Check Your Understanding 1. Constitutional Authority When was the constitutional amendment permitting an income tax ratified? Solution: The 16th amendment to the United States Constitution was passed in 1913. 2. Type of Tax What is a sin tax? Solution: A tax that is designed to discourage the use of a good or service considered undesirable is called a sin tax. 3. Objectives of Taxation What are three objectives of income taxation? Solution: There are numerous objectives of taxation; some of the more common goals besides raising revenue to support the functions of government are to promote wealth redistribution, price stability, economic growth, full employment, and desirable social goals. 4. Taxable Persons What are the three taxable persons that pay all of the income taxes? Solution: Only individuals, regular corporations, and fiduciaries (estates and trusts) pay income taxes. 5. Gross Revenue vs. Gross Income What is the difference between gross revenue and gross income for a business? Solution: A business’s gross revenue includes all of its receipts from the sale of goods or services; a business’s gross income is its gross receipts from sales less the cost of goods sold. 6. Tax Models What are at least three unique features of the individual tax model when compared to the corporate tax model? What are three similarities between these models? Solution: The individual tax model includes an intermediate income concept called adjusted gross income. As a result, an individual can have deductions both for and from adjusted gross income. Deductions from adjusted gross income include personal and dependency exemptions and either a standard deduction or itemized deductions. None of these items appear in the corporate tax model. The corporate and individual tax models both include gross income; they are both permitted deductions from gross income to determine taxable income; they both may have additions to tax and tax credits applied before the final tax liability is determined. Both taxpayers are generally required to make tax prepayments.
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2 Solutions Manual for Taxation for Decision Makers 7. Adjusted Gross Income What is the purpose of adjusted gross income for an individual? Solution: Adjusted gross income is used to provide either a threshold or limitation for most of an individual’s itemized deductions. It is also used to determine at what point an individual’s exemptions and itemized deductions will begin to be phased out as well. 8. Filing Status What are the four filing statuses for which there are standard deductions? Solution: Four filing statuses are single, married filing jointly, married filing separately, and head of household. (The surviving spouse category that uses married filing jointly is discussed in Chapter 11.) 9. Exemptions Differentiate the personal exemption from the dependency exemption. Solution:
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DennisSolutionsCh1 - Chapter 1 An Introduction to Taxation...

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