Taxation For Decision Makers, 2016 6th Edition Solution Manual

Taxation For Decision Makers, 2016 6th Edition Solution Manual provides step-by-step solutions and explanations for better comprehension.

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Solutions to Chapter 1 Problem AssignmentsCheck Your Understanding1. [LO 1.1]Consumption TaxesSolution:Consumption taxes are “spending” taxes. They are taxes that are not levied until aperson decides to expend funds (whether from income or from savings) for goodsor services. The most common consumption tax is the sales tax. Other consumptiontaxes include excise taxes, value added taxes, and use taxes.2. [LO 1.4]Horizontal vs. Vertical EquitySolution:Horizontal equity is the concept that argues that persons in the same economicsituation should pay equivalent amounts of taxes. The concept of vertical equitystates that persons with greater economic wealth should pay a greater amount oftaxes and is the foundation for a progressive rate system; conversely, a person withless wealth would pay less tax.3. [LO 1.4]Constitutional AuthoritySolution:The 16th amendment to the United States Constitution was passed in 1913.4. [LO 1.4]Type of TaxSolution:A tax that is designed to discourage the use of a good or service consideredundesirable is called a sin tax.5. [LO 1.5]Objectives of TaxationSolution:There are numerous objectives of taxation; some of the more common goals besidesraising revenue to support the functions of government are to promote wealthredistribution, price stability, economic growth, full employment, and desirablesocial goals.6. [LO 1.5]Taxable PersonsSolution:Only individuals, regular (or C) corporations, and fiduciaries (estates and trusts) payincome taxes.7. [LO 1.5.]Gross Revenue vs. Gross IncomeSolution:A business’s gross revenue includes all of its receipts from the sale of goods orservices; a business’s gross income is its gross receipts from sales less the cost ofgoods sold.8 [LO 1.5]Tax ModelsSolution:The individual tax model includes an intermediate income concept called adjustedgross income. As a result, an individual can have deductions bothforandfromadjusted gross income. Deductions from adjusted gross income include personal anddependency exemptions and either a standard deduction or itemized deductions.None of these items appear in the corporate tax model. The corporate and individualtax models both include gross income; they are both permitted deductions fromgross income to determine taxable income; they both may have additions to tax and

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