Chapter 1 Answers
a. The statement of facts identifies three taxpayers: Mr. JK, JK Services, and JK Realty.
b. The government of the locality in which Mr. JK resides, the state government of Vermont, and the U.S.
government have j
Penalties, & Loss
Explain why penalties and fines are not deductible.
Penalties and fines are intended to be a form of punishment for legal violations. Allowing a taxpayer to deduct penalties
The Taxation of
What is a capital asset?
All assets that are not specified as ordinary income assets or Section 1231 assets are capital assets. IRC Section 1221 defines capital assets as all assets other than
Gross Income from
Discuss the various types of compensation and whether they must be included in gross
The general rule is that compensation for services must be included in gross income,
regardless of wh
Compare and contrast nonrefundable and refundable tax credits.
Nonrefundable tax credits can reduce the tax on taxable income to zero, but they cannot
generate a tax refund. Refundable tax credits can be used not
Who is responsible for substantiating income tax deductions and how are income tax
In our tax system, responsibility for substantiating deductions falls on taxpaye
Chapter 03 - Taxes as Transaction Costs
Chapter 3 Taxes as Transaction Costs
1. a. $8,802
2. a. $45,123
Why does Congress sometimes allow deductions for personal expenses?
Although personal expenses are generally not deductible, Congress does allow deductions for personal expenses when it desires to enc
Working with the Tax
What are the three primary sources of tax law?
The three primary sources of tax law are statutory sources, administrative sources, and
What is the legal basis for todays incom
Describe the new category of income created by Congress in 1986.
When the passive activity rules were adopted by Congress in 1986, a new category of
income was created passive income. Passive incom
What are the different types of legal entities from which a business owner can conduct
The most common legal forms of business (entity types) used in the United States ar
What is a like-kind exchange?
A like-kind exchange is a tax deferral technique permitted by Section 1031, in which
assets held for productive use in a trade or business are exchanged. A like-kind
What is an ordinary income asset?
Ordinary income assets, including accounts receivable, copyrights in the hands of the
creator, and inventory, generate gains that will be taxed at ordinary income tax ra
How is gain or loss calculated?
The amount of money plus the value of property received in the sale or exchange of an
asset is referred to as the amount realized. To calcul
Gross Income From
What accounting methods are available for reporting gross income?
A taxpayer may choose to use one of several overall methods of accounting for reporting
gross income a
How is income defined?
Income, broadly defined, means the gross amount received, but it does not include borrowed money or the return of invested dollars.
What are exclusions and wh
This chapter does not have Discussion Questions or Multiple Choice Problems.
CHAPTER 1: INTRODUCTION TO INCOME TAX PLANNING
Chapter 05 - Tax Research
Chapter 5 Tax Research
Questions and Problems for Discussion
The tax law is far too voluminous and complex for even experienced tax professionals to know
the answer to all tax questions. In addition, the tax law changes consta
Chapter 04 - Maxims of Income Tax Planning
Chapter 4 Maxims of Income Tax Planning
a. Tax liability $7,245; marginal rate 15%; average rate 15%.
b. Tax liability $209,372; marginal rate 34%; average rate 34%.
c. Tax liability $5,53
Chapter 02 - Policy Standards for a Good Tax
Chapter 2 Policy Standards for a Good Tax
a. Jersey Inc.s income