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Solution Manual for Taxation of Individuals 10th Edition by Spilker

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Solution Manual for Taxation of Individuals 10th Edition by Spilker

ANSWERS TO QUESTIONS

  1. The time value of money is the idea that a dollar received today is worth more than a dollar to be received at any later date because it can be invested today to earn interest over time.
  2. Future value—The future value of a number of dollars is the amount that it will increase to in the future at i interest rate for n periods. The future value is the principal plus accumulated interest compounded each period.

Present value—The present value of a number of dollars, to be received at some specified date in the future, is that amount discounted to the present at i interest rate for n periods. It is the inverse of future value. In compound discounting, the interest is subtracted rather than added as in compounding.

  1. $10,000 x 2.59374 = $25,937 (rounded to the nearest dollar).
  2. $8,000 x .38554 = $3,084 (rounded to the nearest dollar).
  3. An annuity is a term that refers to equal periodic cash payments or receipts of an equal amount each period for two or more periods. In contrast to a future value of $1, or a present value of $1 (which involves a single contribution or amount), an annuity involves a series of equal contributions for a series of equal periods. An annuity may refer to a future value or a present value.

 

 

6.

 

Table Values

Concept i = 5% n =4 i = 10%; n =7 i = 14%; n = 10
FV of $1 1.21551 1.94872  3.70722
PV of $1 0.82270 0.51316   0.26974
FV of annuity of $1 4.31013 9.48717 19.33730
PV of annuity of $1 3.54595 4.86842   5.21612
  1. $1,000 x 14.48656 = $14,487. (rounded to the nearest dollar)

 

Authors’ Recommended Solution Time

(Time in minutes)

 

 

 

Mini-exercises

 

Exercises

 

Problems

No. Time No. Time No. Time
1 2 1 10 CP1 20
2 2 2 15 CP2 20
3 6 3 15 CP3 20
4 6 4 15 CP4 15
5

6

7

8

9

10

11

12

 

3

3

3

3

3

3

3

3

5

6

7

 

5

10

8

PA1

PA2

PA3

PA4

PB1

PB2

PB3

PB4

 

20

20

20

15

20

20

20

15

 

 

 

 

 

ANSWERS TO MINI-EXERCISES

MC–1            

$500,000 ´ 0.46319 (Table C.2, n=10, i=8%) = $231,595

MC–2            

 $15,000 ´   6.14457 (Table C.4, n=10, i=10%) = $92,169

MC–3

     $100,000 (no PV) = $100,000
   $100,000 ´ 0.92593 (Table C.2, n=1, i=8%) = 92,593
   $ 30,000 ´ 9.81815 (Table C.4, n=20, i=8%) =   294,545
Total = $487,138

MC–4

$25,000 ´ 15.93742 (Table C.3, n=10, i=10%) = $398,436
$15,000 ´ 57.27500 (Table C.3, n=20, i=10%) = $859,125

It is much better to save $15,000 for 20 years.

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DescriptionEdition: 10th Edition Format: Downloadable ZIP Fille Resource Type: Solution manual Duration: Unlimited downloads Delivery: Instant DownloadBy: Spilker Edition: 11th Edition Format: Downloadable ZIP Fille Resource Type: Test bank Duration: Unlimited downloads Delivery: Instant DownloadEdition: 11th Edition Format: Downloadable ZIP Fille Resource Type: Solution manual Duration: Unlimited downloads Delivery: Instant DownloadBy: Spilker Edition: 11th Edition Format: Downloadable ZIP Fille Resource Type: Test bank Duration: Unlimited downloads Delivery: Instant DownloadEdition: 37th Edition Format: Downloadable ZIP Fille Resource Type: Solution manual Duration: Unlimited downloads Delivery: Instant DownloadEdition: 42nd Edition Format: Downloadable ZIP Fille Resource Type: Solution manual Duration: Unlimited downloads Delivery: Instant Download
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Solution Manual for Taxation of Individuals 10th Edition by Spilker

ANSWERS TO QUESTIONS
  1. The time value of money is the idea that a dollar received today is worth more than a dollar to be received at any later date because it can be invested today to earn interest over time.
  2. Future value—The future value of a number of dollars is the amount that it will increase to in the future at i interest rate for n periods. The future value is the principal plus accumulated interest compounded each period.
Present value—The present value of a number of dollars, to be received at some specified date in the future, is that amount discounted to the present at i interest rate for n periods. It is the inverse of future value. In compound discounting, the interest is subtracted rather than added as in compounding.
  1. $10,000 x 2.59374 = $25,937 (rounded to the nearest dollar).
  2. $8,000 x .38554 = $3,084 (rounded to the nearest dollar).
  3. An annuity is a term that refers to equal periodic cash payments or receipts of an equal amount each period for two or more periods. In contrast to a future value of $1, or a present value of $1 (which involves a single contribution or amount), an annuity involves a series of equal contributions for a series of equal periods. An annuity may refer to a future value or a present value.
 
  6.   Table Values
Concept i = 5% n =4 i = 10%; n =7 i = 14%; n = 10
FV of $1 1.21551 1.94872  3.70722
PV of $1 0.82270 0.51316   0.26974
FV of annuity of $1 4.31013 9.48717 19.33730
PV of annuity of $1 3.54595 4.86842   5.21612
  1. $1,000 x 14.48656 = $14,487. (rounded to the nearest dollar)
  Authors’ Recommended Solution Time (Time in minutes)    
  Mini-exercises   Exercises   Problems
No. Time No. Time No. Time
1 2 1 10 CP1 20
2 2 2 15 CP2 20
3 6 3 15 CP3 20
4 6 4 15 CP4 15
5 6 7 8 9 10 11 12   3 3 3 3 3 3 3 3 5 6 7   5 10 8 PA1 PA2 PA3 PA4 PB1 PB2 PB3 PB4   20 20 20 15 20 20 20 15
          ANSWERS TO MINI-EXERCISES MC–1            
$500,000 ´ 0.46319 (Table C.2, n=10, i=8%) = $231,595
MC–2            
 $15,000 ´   6.14457 (Table C.4, n=10, i=10%) = $92,169
MC–3
     $100,000 (no PV) = $100,000
   $100,000 ´ 0.92593 (Table C.2, n=1, i=8%) = 92,593
   $ 30,000 ´ 9.81815 (Table C.4, n=20, i=8%) =   294,545
Total = $487,138
MC–4
$25,000 ´ 15.93742 (Table C.3, n=10, i=10%) = $398,436
$15,000 ´ 57.27500 (Table C.3, n=20, i=10%) = $859,125
It is much better to save $15,000 for 20 years.

Test Bank for Taxation of Business Entities 2020 11th Edition By Spilker

Chapter 1   Business Income, Deductions, and Accounting Methods  1) The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary." Answer:  TRUE Difficulty: 1 Easy Topic:  Business Deductions Learning Objective:  01-01 Identify common business deductions. Bloom's:  Remember AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 2) Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits. Answer:  TRUE Difficulty: 1 Easy Topic:  Business Deductions Learning Objective:  01-01 Identify common business deductions. Bloom's:  Remember AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 3) The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business. Answer:  FALSE Explanation:  A necessary expense is an expense that is helpful or conducive to the business activity. Difficulty: 2 Medium Topic:  Business Deductions Learning Objective:  01-01 Identify common business deductions. Bloom's:  Analyze AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 4) Reasonable in amount means that expenditures can be exorbitant as long as the activity is motivated by profit. Answer:  FALSE Difficulty: 2 Medium Topic:  Business Deductions Learning Objective:  01-01 Identify common business deductions. Bloom's:  Analyze AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 5) The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount. Answer:  TRUE Difficulty: 2 Medium Topic:  Business Deductions Learning Objective:  01-01 Identify common business deductions. Bloom's:  Remember AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 6) Illegal bribes and kickbacks are not deductible as business expenses but fines imposed by a governmental unit are deductible as long as the fines are incurred in the ordinary course of business. Answer:  FALSE Explanation:  No deductions are allowed for expenditures that are against public policy. Difficulty: 2 Medium Topic:  Limitations on Business Deductions Learning Objective:  01-02 Determine the limits on deducting business expenses. Bloom's:  Understand AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 7) Although expenses associated with illegal activities are not deductible, political contributions can be deducted as long as the donation is not made to a candidate for public office. Answer:  FALSE Difficulty: 1 Easy Topic:  Limitations on Business Deductions Learning Objective:  01-02 Determine the limits on deducting business expenses. Bloom's:  Remember AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 8) When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible. Answer:  TRUE Difficulty: 2 Medium Topic:  Limitations on Business Deductions Learning Objective:  01-02 Determine the limits on deducting business expenses. Bloom's:  Remember AACSB:  Reflective Thinking AICPA:  BB Critical Thinking

Solution Manual for Taxation of Business Entities 2019 Edition 10th Edition by Spilker

Chapter 1 Business Income, Deductions, and Accounting Methods     SOLUTIONS MANUAL Discussion Questions
  1. [LO 1] What is an “ordinary and necessary” business expenditure?
          “Ordinary” and “necessary” imply that an expense must be customary and helpful, respectively.  Because these terms are subjective, the tests are ambiguous.  However, ordinary is interpreted by the courts as including expenses which may be unusual for a specific taxpayer (but not for that type of business) and necessary is not interpreted as only essential expenses.  These limits can be contrasted with the reasonable limit on amounts and the bona fide requirement for profit motivation. 
  1. [LO1] Explain how cost of goods sold is treated whena business sells inventory.
          Under the return of capital principle, cost of goods sold represents a reduction in gross income rather than a business expense.  For example, if a taxpayer sells inventory for $100,000 and reports a cost of goods sold of $40,000, the business’s gross income is $60,000 ($100,000 – 40,000) not $100,000.
  1. [LO 1] Whether a business expense is “reasonable in amount” is often a difficult question. Explain why determining reasonableness is difficult and describe a circumstance where reasonableness is likely to be questioned by the IRS.
          Reasonableness is an issue of fact and circumstance, and extravagance is difficult to determine because of the subjectivity and multitude of factors involved in determining price. Reasonableness is most likely to be an issue when a payment is made to a related individual or the taxpayer enjoys some personal benefit incidental to the expenditure. 
  1. [LO 1] Jake is a professional dog trainer who purchases and trains dogs for use by law enforcement agencies. Last year Jake purchased 500 bags of dog food from a large pet food company at an average cost of $30 per bag.  This year, however, Jake purchased 500 bags of dog food from a local pet food company at an average cost of $45 per bag.  Under what circumstances would the IRS likely challenge the cost Jake’s dog food as unreasonable?
          A common test for reasonableness is whether the expenditure is comparable to an arm's length amount – a price charged by objective (unrelated) individuals who do not receive any incidental personal benefits.  Hence, the IRS is most likely to challenge the cost of the dog food if Jake’srelatives control or own the local pet food company and was benefiting from the increased price.
  1. [LO 2] What kinds of deductions are prohibited as a matter of public policy? Why might Congress deem it important to disallow deductions for expenditures that are against public policy?
          The IRC lists bribes, kickbacks, and “other” illegal payments as nondeductible.  Congress didn’t want the tax benefits associated with deductions to benefit or subsidize wrongdoing.  Of course, this rationale doesn’t really explain the prohibition against deducting political contributions which is probably better explained by the potential perception that political efforts are being subsidized by taxpayers.
  1. [LO2] Provide an example of an expense associated with the production of tax-exempt income, and explain what might happen if Congress repealed the prohibition against deducting expenses incurred to produce tax-exempt income.
          Two common examples are interest expense associated with debt used to purchase municipal bonds and life insurance premiums paid on key man insurance.  If this prohibition were repealed, then taxpayers would have an incentive to borrow to invest in municipal bonds or borrow to invest in employee life insurance.  This former practice would lead to higher demand for municipal bonds (less yield) and less revenue for the government.  The latter practice would lead to higher demand for insurance (higher premiums?) and less revenue for the government.  Both practices could lead to a perception of inequity between those taxpayers able to utilize the tax arbitrage to reduce taxes and those who could not use the practice.
  1. [LO 2] {Research} Peggy is a rodeo clown, and this year she expended $1,000 on special “funny” clothes and outfits. Peggy would like to deduct the cost of these clothes as work-related because she refuses to wear the clothes unless she is working. Under what circumstances can Peggy deduct the cost of her clown clothes?
          Taxpayers may deduct the cost of uniforms or special clothing they use in their business when the clothing is not appropriate to wear as ordinary clothing outside the place of business.  In Peggy’s case, the clown clothes are analogous to special uniforms or protective garments and could be deductible. See D. Techner, TC Memo 1997-498.  Erhard Seminar Training, TC Memo 1986-526 provides an example of clothes that were not deductible because they were appropriate for normal wear. However, the cost of clothing would not likely be deductible if the clothes were unacceptable solely because of the taxpayer’s sense of fashion. 
  1. [LO 2] Jimmy is a sole proprietor of a small dry-cleaning business. This month Jimmy paid for his groceries by writing checks from the checking account dedicated to the dry-cleaning business.  Why do you suppose Jimmy is using his business checking account rather than his personal checking account to pay for personal expenditures?
          Jimmy might be trying to reduce his bank charges by using one account for both personal and business expenditures, but he could also be trying to disguise personal expenditures as business expenses.  By commingling business and personal expenditures, Jimmy will need to separate personal and business expenditures before claiming any business deductions.
  1. [LO 2] Troy operates an editorial service that employs two editors. These editors often entertain authors to encourage them to use Troy's service. This year Troy reimbursed the editors $3,000 for the cost of meals and $6,200 for the cost of entertaining authors. Describe whether Troy can deduct the cost of the meals and entertainment.
          To deduct any portion of the cost of meals as a business expense, the amount must be reasonable under the circumstances, an employee must be present when the meal is furnished, andthe meal must be directly associated with the active conduct of the taxpayer’s business. Similar to business meals, entertainment associated with business activities contains a significant element of enjoyment. The Tax Cuts and Jobs Act enacted in late 2017 made entertainment nondeductible as a business expense. Hence, if the authors are clients or potential clients, the expenses are reasonable in amount and connected with the conduct of business, then Troy should be able to deduct $1,500 (50% of the cost of the meals and none of the entertainment).
  1. [LO 2] Jenny uses her car for both business and personal purposes. She purchased the auto this year and drove 11,000 miles on business trips and 9,000 miles for personal transportation.  Describe how Jenny will determine the amount of deductible expenses associated with the auto.
          Because only the expense relating to business use is deductible, the taxpayer must allocate the expenses between the business and personal use portions.  A common method of allocation is relative use.  In this instance Jenny would calculate the business portion based upon the ratio of business miles to total miles (11/20 or 55 percent).  She would then deduct the costs of operating the vehicle for business purposes plus depreciation on the business portion (55 percent) of the vehicle’s tax basis.  Alternatively, in lieu of deducting these costs, Jenny may elect to deduct a standard amount for each business mile she drives.  The standard mileage rate (54.5 cents per mile for 2018) represents the per-mile cost of operating an automobile (including depreciation or lease payments).  Once Jenny has made this election, she must continue to use it throughout the life of the auto.
  1. [LO 1, LO 2] What expenses are deductible when a taxpayer combines both business and personal activities on a trip? How do the rules for international travel differ from the rules for domestic travel?
          If the taxpayer has both business and personal motives for a trip, but the primary or dominant motive is business, the taxpayer may deduct the transportation costs to get to the place of business, but she may deduct only meals (50%), lodging, transportation on site, and incidental expenditures for the business portion of the travel.  If the taxpayer’s primary purpose for the trip is personal, the taxpayer may not deduct transportation costs to travel to and from the location but the taxpayer may deduct meals (50%), lodging, transportation, and incidental expenditures for the business portion of the trip.  For international travel in excess of one week, the taxpayer must allocate the cost of the transportation between personal (nondeductible) and business (deductible) activities.  Taxpayers generally determine the nondeductible portion of the transportation costs by multiplying the travel costs by a ratio of personal activity days to total days travelling.  Finally, remember that travel days are considered business activity days for both domestic and international travel.
  1. [LO 2] Clyde lives and operates a sole proprietorship in Dallas, Texas. This year Clyde found it necessary to travel to Fort Worth (about 25 miles away) for legitimate business reasons.  Is Clyde’s trip likely to qualify as “away from home,” and why would this designation matter?
          Besides the cost of transportation, the deduction for travel expenses includes meals (50%), lodging, and incidental expenses.  However, travel expenses are only deductible if the taxpayer is away from home overnight while traveling.  For this purpose, a taxpayer is considered to be away from home overnight if the trip is of sufficient duration to require sleep or rest.  It’s likely that Clyde’s trip will not satisfy this condition and that he will not be able to deduct half the cost of meals and the entire cost of lodging.

Test Bank for Taxation of Individuals 2020 Edition 11th Edition By Spilker

Taxation of Individuals, 11e (Spilker) Chapter 1   An Introduction to Tax  1) Taxes influence many types of business decisions but generally do not influence personal decisions. Answer:  FALSE Difficulty: 1 Easy Topic:  Who Cares About Taxes and Why? Learning Objective:  01-01 Demonstrate how taxes influence basic business, investment, personal, and political decisions. Bloom's:  Remember AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 2) Taxes influence business decisions such as where a business should locate or how a business should be structured. Answer:  TRUE Difficulty: 1 Easy Topic:  Who Cares About Taxes and Why? Learning Objective:  01-01 Demonstrate how taxes influence basic business, investment, personal, and political decisions. Bloom's:  Remember AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 3) Tax policy rarely plays an important part in presidential campaigns. Answer:  FALSE Difficulty: 1 Easy Topic:  Who Cares About Taxes and Why? Learning Objective:  01-01 Demonstrate how taxes influence basic business, investment, personal, and political decisions. Bloom's:  Remember AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 4) Margaret recently received a parking ticket. This is a common example of a local tax. Answer:  FALSE Difficulty: 1 Easy Topic:  What Qualifies as a Tax? Learning Objective:  01-02 Discuss what constitutes a tax and the general objectives of taxes. Bloom's:  Remember AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 5) George recently paid $50 to renew his driver's license. The $50 payment is considered a tax. Answer:  FALSE Explanation:  A tax is a payment required by a government that is unrelated to any specific benefit or service received by the government. Difficulty: 1 Easy Topic:  What Qualifies as a Tax? Learning Objective:  01-02 Discuss what constitutes a tax and the general objectives of taxes. Bloom's:  Remember AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 6) A 1 percent charge imposed by a local government on football tickets sold is not considered a tax if all proceeds are earmarked to fund local schools. Answer:  FALSE Difficulty: 2 Medium Topic:  What Qualifies as a Tax? Learning Objective:  01-02 Discuss what constitutes a tax and the general objectives of taxes. Bloom's:  Understand AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 7) One key characteristic of a tax is that it is a required payment to a governmental agency. Answer:  TRUE Difficulty: 2 Medium Topic:  What Qualifies as a Tax? Learning Objective:  01-02 Discuss what constitutes a tax and the general objectives of taxes. Bloom's:  Analyze AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 8) Common examples of sin taxes include the taxes imposed on airline tickets and gasoline. Answer:  FALSE Difficulty: 2 Medium Topic:  What Qualifies as a Tax? Learning Objective:  01-02 Discuss what constitutes a tax and the general objectives of taxes. Bloom's:  Analyze AACSB:  Reflective Thinking AICPA:  BB Critical Thinking 9) One benefit of a sin tax (e.g., a tax on cigarettes) is that it should increase the demand for the products being taxed. Answer:  FALSE Difficulty: 2 Medium Topic:  What Qualifies as a Tax? Learning Objective:  01-02 Discuss what constitutes a tax and the general objectives of taxes. Bloom's:  Analyze AACSB:  Reflective Thinking AICPA:  BB Critical Thinking

Solution Manual for Income Tax Fundamentals 2019 37th Edition Whittenburg

Solution Manual for Income Tax Fundamentals 2019, 37th Edition, Gerald E. Whittenburg, Steven Gill, ISBN-10: 1337703060, ISBN-13: 9781337703062
Table of Contents
1. The Individual Income Tax Return.
2. Gross Income and Exclusions.
3. Business Income and Expenses, Part I.
4. Business Income and Expenses, Part II.
5. Itemized Deductions and Other Incentives.
6. Credits and Special Taxes.
7. Accounting Periods and Methods and Depreciation.
8. Capital Gains and Losses.
9. Withholding, Estimated Payments, and Payroll Taxes.
10. Partnership Taxation.
11. The Corporate Income Tax.
12. Tax Administration and Tax Planning.
Appendix A: Tax Rate Schedules and Tax Tables.
Appendix B: Earned Income Credit Table.
Appendix C: Withholding Tables.
Appendix D: Additional Comprehensive Tax Return Problems.
Appendix E: Solutions to Self-Study Problems.
Glossary of Tax Terms.
Index.
List of Forms.
List of Schedules.

Solution Manual for South Western Federal Taxation 2019 Individual Income Taxes 42nd Edition by Young

CHAPTER 1 AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW LECTURE NOTES OVERVIEW The primary objective of this chapter is to provide an overview of the Federal tax system. Among the topics discussed are the following: • The importance and relevance of taxation. • A brief history of the Federal income tax. • The types of taxes imposed at the Federal, state, and local levels. • Some highlights of tax law administration. • Tax concepts that help explain the reasons for various tax provisions. • The influence the Internal Revenue Service (IRS) and the courts have had in the evolution of current tax law. SUMMARY OF CHANGES IN THE CHAPTER The following are notable changes in the chapter from the 2018 Edition. For major changes, see the Preface of the text. • Updated Exhibit 1.1 (Federal Tax Revenues) and Exhibit 1.4 (IRS Audit Types and Rates) with current data. • Revised text to reflect the Tax Cuts and Jobs Act (TCJA) of 2017 and revised various inflation-adjusted information in the chapter. • Identified critical thinking questions and problems. • Added a new Research Problem to analyze a soda tax or sweetened beverage tax proposal against the AICPA’s Principles of Good Tax Policy. THE BIG PICTURE The Big Picture discussion in Chapter 1 addresses several situations commonly encountered by taxpayers that also create taxable income consequences. For example, students may not be familiar with the concept that gift giving (even in families) creates tax consequences for the gift giver or that working in another state subjects a taxpayer to tax in more than just his or her home state. While students may not yet have significant exposure to all the tax issues raised in the Big Picture scenario, the exercise provides an opportunity to help students think about why tax consequences might arise and how to go about expanding their knowledge of tax law. For example, employing children in a family business raises questions about FICA withholding as 1-2 2019 Individual Income Taxes: Instructor’s Guide with Lecture Notes © 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. well as what constitutes reasonable compensation. The student might make the link to FICA withholding after reading the chapter. However, a quick search on the IRS’s web page results in a page that provides information about tax consequences that arise when hiring family members (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Family-Help). The FICA withholding discussion might lead to a discussion of incentives related to family members’ salaries which could nicely lead into a discussion of why the IRS might be interested in auditing a family business/closely held business. The scenario could also be integrated into a discussion of what is the “best” tax system, especially because the Carters are currently employed while the Walkers are retirees. The instructor could use this fact to address why differently situated taxpayers may have varying preferences about what type of tax system is the “best” tax system. APPROACHING THE STUDY OF TAXATION What Is Taxation? 1. “Taxes are what we pay for civilized society.” – Oliver Wendell Holmes, Jr. 2. The primary purpose of taxation—to raise revenue for government operations. 3. Taxation is often used as a tool to influence the behavior of individuals and businesses. a. Income tax credits are designed to encourage people to purchase a fuel-efficient car. b. A tobacco excise tax may discourage individuals from smoking. Taxation in Our Lives 4. Individuals are affected most directly by taxes when they need to pay them. a. Direct tax is paid to the government by the person who pays the tax (i.e., personal income tax and property taxes). b. Indirect tax includes things such as a state sales tax on the purchase of tangible goods such as clothing. The tax is collected and remitted to the government by the seller. The buyer is charged the tax along with the purchase price of the goods or services or it may be embedded in the price charged.
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