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How ethical behaviors can impact the re-distributive policy of income tax

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How ethical behaviors can impact the re-distributive policy of income tax.

Order Instructions:

Capture this; I am against redistribute policy. I believe that redistributive is unfair to certain groups of people and it is unfair to another group of people regardless of their wealth. Income tax should be flat or proportions, same percentage for all. progressive U.S. current tax system gives negative incentives and discourages hard work. The government could support or give aid to those considered to be “less advantage” and not through taking other taxpayers earning.
Sources to be not older than 2012.

How ethical behaviors can impact the re-distributive policy of income tax

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How ethical behaviors can impact the re-distributive policy of income tax

Introduction

Taxation has always been used as a means for the governing body to earn for the purposes of provision of service to their people. It is a concept that has been there since long ago. There are however different methods through which the taxation process is carried out, income tax, value added tax and sales tax among others. This is all meant to ensure the sustenance of the social contract between the citizenry and the governing bodies. In the exercising of their taxing mandate the United States has come up with various methods that are meant to guide the process of taxation.

These methods typically need to conform to the values the society regards as ethical in order to gain acceptance among them. In so doing, the use of the redistributive system of taxation has been applied in the income tax collection. This system bears into consideration the amount of income and taxes in accordance with the same such that those who earn more pay more and vice versa. In the implementation of the same, the principle of equality was core. The taxation system additionally gives incentives to others by exempting them from taxation due to their financial situations.

Ethical behaviors and taxation

The rationality associated with decision making has long been considered as being due to the conscious and unconscious elements in our thoughts. The commitment of one to fulfill their social obligations such as the payment of tax has been premised on the principle of fairness where they are rewarded satisfactorily for their efforts (Chan, Wong and Wong, 2013). The same can be seen in taxation, in that those who feel satisfied by the services being offered by the government readily pays their taxes and are even willing to work harder in order to meet their tax obligations.

In the discharge of their taxation obligations, the government has made several rules that are intended to foster the principle of equality and social inclusion of all. The redistributive policy was thus implemented. This policy is meant to tax more for those who earn more and subsequently less for those who owe less. It is also coupled with certain incentives that are meant to cushion both businesses and individuals who earn less but have more social obligations.

The same is also meant to increase the chances of individuals in business as their risks would have been lowered by the incentive (Pastor and Veronesi, 2016). It is also meant to be a social cushion where the money saved by the incentives can be used in the performance of other social obligations in relation to the safeguarding of the basic societal provisions. In all this, the government tries to ensure equality and inclusiveness by giving the less fortunate the incentive for them to be able to provide for their basic needs.

All in all, the payment of tax is an obligation of every citizen and the incentives offered are meant to help the society by reducing their financial burdens so that they can be able to cater for their basic needs and also take risks in business ventures due to their skill set. It is therefore the general perception that in the discharge of their duty to pay tax, the citizens will be guided by their moral authority to fulfill their social obligations.

Negative impact of redistributive policy in income taxation.

The promotion of redistributive taxation and the progressive system in the imposition of the same has however led to the unethical behavior in many. This is because of the unfairness it has to the hard working Americans who toil to earn a living only to be taxed and the same used in supporting and offering essential services to those who do not work but wait on the incentives. This process of taxation is termed unfair since one is made to pay more for working harder. The cost benefits are classified as one of the factors that affect the ethical behaviors in people (Trautmann, van de Kuilen and Zeckhauser, 2013).

In the consideration of the same, the use of the redistributive system can be said to have negative implications in the motivation of citizenry generally classified as of the lower class in not seeking sources of income since they will be cushioned from paying taxes and yet receive the same basic services the others are receiving. The value of hard work and the utilization of the different talents will be diminished since preference is given to those with less as they do not have to pay but receive the services anyway….

How ethical behaviors can impact the re-distributive policy of income tax

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Federal Income Tax System

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Federal Income Tax System

Overview
Analyze official rules and instructions of th Federal Income Tax System to determine an individual’s tax liability and complete a basic tax return.
Note: Completing a tax return requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order. Incorrect entries in this assessment will result in
incorrect entries in future assessments. Do not complete Assessment 2 until you have submitted and received faculty feedback for Assessment 1.

Federal Income Tax System

Using an official primary source to obtain answers to tax questions is an essential academic skill and step toward financial literacy.
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
Competency 1: Analyze the background of the federal income tax system.
o Provide evidence of requirements for a tax return from an official primary source.
o Determine whether filing a return is mandatory for a scenario.
o Determine filing status.
o Determine filing cost for an e-return.
Competency 2: Analyze the basics of individual income tax return preparation.
o Analyze official rules, instructions, and tax tables to determine the tax owed.
o Analyze official rules, instructions, and tax tables to determine the amount of a refund.

Federal Income Tax System

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Context
“The art of taxation consists in so plucking the goose to obtain the largest amount of feathers with the least possible amount of hissing.” — Jean-Baptiste Colbert, French Minister of Finance from 1665 to 1683 under the rule of King Louis XIV. If the scenario described in Colbert’s quote seems familiar, it is probably because it is repeated annually by the millions of U.S. citizens who are obligated to pay homage to the Internal Revenue Service by remitting many of their hard-earned
dollars because they underpaid Uncle Sam throughout the prior tax year. The federal tax system is a huge structural machine that seems more complex each year.
Try to keep the hissing down as we begin to pluck the feathers off the goose one at a time.

Reference
Quotegarden.com. (n.d.). Quotations about taxes. Retrieved from http://www.quotegarden.com/taxes.html

Question to Consider
To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

Federal Income Tax System

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Until what age can a parent claim a child as a dependent?
How much money does a person have to earn to trigger the filing requirement?
Is it necessary to purchase tax software to calculate every return?

Resources
The following resources are required to complete the assessment.
Internet Resources
Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.
IRS.gov is the homepage for the federal IRS Web site. Use the tabs at the top of the page to navigate the site. The Interactive Tax Assistant and Tax Trails are tools that walk you through a series of questions to find answers to taxn questions.
Download the appropriate forms and publications from the IRS Web site to ncomplete this assessment.
IRS.gov. (n.d.). Retrieved from http://www.irs.gov/
IRS. (n.d.). Interactive tax assistant. Retrieved from http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1
IRS. (n.d.). Tax trails. Retrieved from www.irs.gov/Individuals/Tax-Trails%2d%2d%2dMain-Menu

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Sole Proprietor Income Deductions

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Sole Proprietor Income Deductions

Analyze official rules and instructions to complete a Schedule C and related required tax forms, to reflect income and deductions related to self-employment as a sole proprietor.

Note: Completing a tax form requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order. Incorrect entries in previous assessments will result in incorrect entries in future assessments. Do not complete Assessment 2 until you have submitted and received faculty feedback for

Assessment 1.

The use of Schedule C is required when the individual’s business is not incorporated or formed as a partnership or limited liability company.
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Analyze the background of the federal income tax system.o Analyze official information to identify tax forms required for a sole proprietorship

• Competency 2: Analyze the basics of individual income tax return preparation.o Analyze official rules and instructions to determine eligible business tax credits.o Analyze official rules and instructions to determine eligible deductions.o Analyze official rules and instructions to correctly compute SE tax and SE deduction.o Interpret official rules and instructions to record correct entries on all tax forms.

Sole Proprietor Income Deductions

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Context

“The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” — Ronald Reagan.

If an individual is searching for a tax strategy to offset his or her income from a primary job, being self-employed on the side is quite possibly one of the best options, along with being a real estate property owner or an investor. Each of these has the advantage of allowing an individual to reduce current income by any losses suffered from freelancing, renting out property, or investing.

However, the individual takes on additional work for the filing process. Schedule C must be completed, a task that requires an individual to know much more about the tax rules for recognizing income and maximizing expenses than many persons are willing to invest the time to research.

Question to Consider

To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

• What are the financial advantages of self-employment?• Can a person have multiple Schedule Cs?• What are the financial implications of hiring employees versus independent contractors?

Resources
The following resources are required to complete the assessment.

Internet Resources

Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.
RS.gov is the homepage for the federal IRS Web site. Use the tabs at the top of the page to navigate the site. The Interactive Tax Assistant and Tax Trails are tools that walk you through a series of questions to find answers to tax questions.

Download the appropriate forms and publications from the IRS Web site to complete this assessment.• IRS.gov. (n.d.). Retrieved from http://www.irs.gov/• IRS. (n.d.). Interactive tax assistant. Retrieved from http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1• IRS. (n.d.). Tax trails. Retrieved from www.irs.gov/Individuals/Tax-Trails%2d%2d%2dMain-Menu

Suggested Resources

FORM 1040: SCHEDULE C SELF-EMPLOYED BUSINESS INCOME
Taxpayers who attribute a large portion of their taxable income to operating a self-employment business or trade must complete Schedule C to determine the presence of a business income or loss. The income from this endeavor is netted with related ordinary and necessary business expenses to calculate the increase or decrease in AGI that result from the self-employed trade or business.

In addition to completing and filing Schedule A with the taxpayers Form 1040, it may be necessary to file Schedule SE (Self-employment Tax), as well as Forms 8829 (Expenses for Business Use of Your Home) and 4562 (Depreciation and Amortization).

• J. K. Lasser Institute. (2015). Your income tax 2015: For preparing your 2014 tax return. Hoboken, NJ: Wiley.

• J. K. Lasser Institute. (2014). Your income tax 2014: For preparing your 2013 tax return. Hoboken, NJ: Wiley.

• Herman, T. (2014, February 16). Home-office deduction simplified. The Wall Street Journal, p. 2.

• Flynn, K. E., Belak, P., & Soltis, G. (2014). Understanding individual tax compliance: Advanced deductions and related issues. Journal of Business Case Studies, 10(4), 425–440

• Korb, P. J., & Williams, J. L. (2014). Simplified option versus regular method for home office deductions. The CPA Journal, 84(12), 36–39.

• Intuit Inc. (2015, January 26). Intuit’s QuickBooks Online Self-Employed integrates with Stripe, simplifying tax reporting for on-demand economy workers [Press release]. Business Wire.

• Everett, J. O., Hennig, C. J., Raabe, W. A., & Sonnier, B. M. (2013). Tax planning opportunities for individual net operating losses. Journal of Taxation, 119(3), 108–116.

Sole Proprietor Income Deductions

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Internet Resources

Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.• lynda.com. (n.d.). Income tax fundamentals: Accounting tutorials. Retrieved from http://www.lynda.com/Business-Accounting-tutorials/Income-Tax-Fundamentals/188210-2.html• IRS. (n.d.). IRS videos. https://www.youtube.com/user/irsvideos.

o The IRS has a channel on YouTube devoted to income tax information in a video format. There are numerous videos available to help you with the course assessments. Videos are available with closed captions and in ASL and multilingual versions. You can search this channel by topic.

Assessment Instructions

1.Calculating correct entries for self-employment requires significant research. For those are who self-employed, entries from self-employment tax forms are necessary to complete the 1040 form.

For this assessment, use information and publications from IRS.gov and the other IRS resources linked in the Resources under the Required Resources heading to research the regulations and complete the appropriate self-employment schedules, based on the provided scenario.

Sole Proprietor Income Deductions

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Complete the following:

• Read the information provided in the scenario below.

• Download the appropriate forms and publications from IRS.gov to complete this assessment.

• Complete the entries on tax forms required for a sole proprietorship return.

• Analyze official rules and instructions to correctly compute SE tax and SE deduction.o 1040sc.o 1040sse.

• Determine whether Jacob’s business is eligible for any tax credits.o Is Jacob’s business eligible to use the Work Opportunity Credit and Disabled Access Credit?

• Determine eligible business deductions.

• Interpret official rules and instructions to record correct entries on all related self-employed schedules.

• Submit the tax forms.

Scenario
Jacob Weaver is a contractor operating as a sole proprietorship (EIN 99-3456789).
• 2016 net income: $133,000.

• Clients owe him a total of $53,000 for work completed in 2016.

• 2016 estimated tax payments: $25,000.

• Jacob and Taylor bought their first house in 2016.

• He is using a bedroom in his house as a home office. The room is 15′ x14′.

• He has one half-time employee, Martin, who had been unemployed since returning from Afghanistan and is disabled.o Martin worked for Jacob for 20 hours a week, for 41 weeks of 2016.o Martin earned $10,500.o Jacob had to spend $7,350 for disabled access equipment for Martin

Sole Proprietor Income Deductions

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Tax Credits on 1040 to Reduce Tax Liability

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Tax Credits on 1040 to Reduce Tax Liability

Assessment 5

Overview

Determine eligibility for available tax credits and complete an official worksheet for each credit, to demonstrate eligibility.Note: Completing a tax form requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order. Incorrect entries in previous assessments will result in incorrect entries in future assessments. Do not complete Assessment 5 until you have submitted and received faculty feedback for Assessment 4.

Tax credits work to lower taxpayer liability rather than provide refund incentives. A tax credit is subtracted directly from the taxpayer’s tax obligation, providing equal relief to all taxpayers. This can make the credit more valuable than a deduction taken during the filing process.

Tax Credits on 1040 to Reduce Tax Liability

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By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Analyze the background of the federal income tax system.
o Interpret official rules and instructions to record correct entries on tax forms.• Competency 2: Analyze the basics of individual income tax return preparation.o Analyze tax rules to complete tax credit worksheets to prove eligibility.o Apply laws and rules to correctly enter data on Schedule A.o Apply rules and tax tables to record the correct tax owed on the 1040.o Correctly calculate the amount of a refund on the 1040.

Context

“When a new source of taxation is found it never means, in practice, that the old source is abandoned. It merely means that the politicians have two ways of milking the taxpayer where they had one before.” — Henry Louis Mencken, one of the most influential American writers of the early twentieth century.

Politicians have a penchant for finding ways for doing one of two things:

• Enacting tax credits for the benefit of individual taxpayers as a means of putting more money in taxpayer pockets to stimulate the economy.• Enacting tax credit legislation for the benefit of specific groups or industries in the business sector.
The hope is that businesses will take the additional monies and reinvest them in the business for the benefit of the economy.

There are credits for foreign taxes paid, child and dependent care expenses, and for the elderly or disabled; credits for education, retirement savings contributions, and residential energy; and child tax credit, adoption, retirement savings, and earned income credits.

Tax Credits on 1040 to Reduce Tax Liability

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Reference

Quotegarden.com. (n.d.). Quotations about taxes. Retrieved from http://www.quotegarden.com/taxes.html

Question to Consider

To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

• How do tax credits directly benefit an individual taxpayer?• Which is more advantageous: a deduction or a tax credit?• What can you do if you have already filed your tax return and you discover you are eligible for a tax credit?

Resources

Required Resources

The following resources are required to complete the assessment.
Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate

IRS.gov is the homepage for the federal IRS Web site. Use the tabs at the top of the page to navigate the site. The Interactive Tax Assistant and Tax Trails are tools that walk you through a series of questions to find answers to tax questions. Download the appropriate forms and publications from the IRS Web site to complete this assessment.

• IRS.gov. (n.d.). Retrieved from http://www.irs.gov/• IRS. (n.d.). Interactive tax assistant. Retrieved from http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1• IRS. (n.d.). Tax trails. Retrieved from www.irs.gov/Individuals/Tax-Trails%2d%2d%2dMain-Menu
The following optional resources are provided to support you in completing the assessment or to provide a helpful context.
Click the links provided below to view the following multimedia pieces:

Tax Credits on 1040 to Reduce Tax Liability

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FORM 1040: TAX CREDITS

This final section of Form 1040 incorporates a variety of tax credits designed to reduce tax liability for certain taxpayer groups. The unique aspect of these credits is that they are subtracted directly from the total federal tax liability of the taxpayer(s). The affect of these credits can reduce or eliminate the taxpayer’s financial obligation.If a taxpayer is eligible for any/all of the credits, additional tax forms must be completed and filed with the Form 1040.

The primary forms are Form 1116 ( Foreign Tax Credit), Form 2441 (Credit for Child and Dependent Care Expenses), Form 8863 (Education Credits), Form 8880 (Credit for Retirement Savings Contributions, Form 8839 (Qualified Adoption Expenses), and Schedule EIC (Earned Income Credit).Licensed under a Creative Commons Attribution 3.0 License.

Library Resources

• J. K. Lasser Institute. (2015). Your income tax 2015: For preparing your 2014 tax return. Hoboken, NJ: Wiley.

• J. K. Lasser Institute. (2014). Your income tax 2014: For preparing your 2013 tax return. Hoboken, NJ: Wiley.

• Galletta, P. Z. (2014). Taking credit for your work: A roundup of federal tax credits available to individuals. The CPA Journal, 84(12), 17–23.

• Crawford, C., & Crawford, C. (2014). 2014 individual tax landscape. The CPA Journal, 84(12), 6–8.

• Baldwin, D. R., Carlton, L. H., Fava, K. L., Haim, D, Horn, J., Morrow, S., . . . Zidik, D. J., Jr. (2014). Individual taxation: Digest of recent developments: Part II. The Tax Adviser, 45(4), 274–280.

Internet Resources

Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.
• lynda.com. (n.d.). Income tax fundamentals: Accounting tutorials. Retrieved from http://www.lynda.com/Business-Accounting-tutorials/Income-Tax-Fundamentals/188210-2.html

• IRS. (n.d.). IRS videos. https://www.youtube.com/user/irsvideos.

Cruz, A., Deschamps, M., Niswander, F., Prendergast, D., Schisler, D., & Trone, J. (2016). Fundamentals of taxation 2016 [with taxation software] (9th ed.). New York, NY: McGraw-Hill.o Chapter 9, “Tax Credits (Lines 47 through 54 and Line 64A, Form 1040).”

Tax Credits on 1040 to Reduce Tax Liability

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Assessment Instructions

Note: The assessments in this course are presented in sequence and must be completed in order. In Assessments 2–5, you will work step-by-step toward completing a 1040 tax return and all the necessary related forms, based on a provided scenario. Do not complete Assessment 5 until you have submitted and received faculty feedback for Assessment 4.
This assessment will require significant research and critical thinking to complete each required form successfully. An incorrect entry on one form will create incorrect entries in other forms.

There are two parts to this assessment. Be sure to complete both parts and submit the necessary materials.• Part 1: Determine eligible tax credits by completing official worksheets.• Part 2: Complete Schedule A and the 1040.

Preparation

• Read the information provided in the scenario below.• Download the following tax forms and instructions from IRS.gov, linked in the Resources under the Required Resources heading:o 1040.o Schedule A.o 2441.o 3800.o 5884.o 6251.o 8826.
Part 1Use the information in the scenario, on IRS.gov, and in the interactive IRS tools to interpret official rules and instructions to determine available tax credits.

Tax Credits on 1040 to Reduce Tax Liability

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• Complete an official worksheet for each tax credit to demonstrate eligibility.• Submit each tax credit worksheet.
Part 2Use the information in the scenario, on IRS.gov, and in the interactive IRS tools to Interpret official rules and instructions to complete the following:

• Complete Schedule A.• Enter data from Schedule A into the 1040.• Apply the rules and tax tables to calculate the tax owed and the amount of any refund.• Submit Schedule A and the completed 1040.
Scenario—Use form for 2016

• Jacob and Taylor Weaver, ages 45 and 42 respectively, are married and are filing jointly in 2016.o They have three children, Ashley, age 9; Patrick, age 6; and John, age 18.o Social Security numbers are: Jacob, 222-33-4444; Taylor, 555-66-7777; Ashley, 888-99-1234; Patrick, 789-56-4321; John, 123-45-6789.
Jacob is self-employed as a contractor.o 2016 net income: $133,000.o Clients owe him a total of $53,000 for work completed in 2016.o 2016 estimated tax payments: $25,000.

• Taylor works part-time as a paralegal.o She earned $26,000 in 2016.o Federal income withholding: $2,350.• Weavers $350 paid with their 2015 state tax return.• Jacob and Taylor bought their house in 2016.o Home mortgage interest: $7,246.o Property tax: $2,230.

• Charities: $4,500.• $435 to rent a moving truck.• $8,000 to put new siding on the house.• $11,600 for child care expenses ($5,800 for each child).o It was paid to Lil Tigers Daycare, 1115 S. Garrison St., Muncie, IN 47305 (EIN 98-7654321).• Taylor is a part-time student at Ball State University in Muncie.

o She received a 1098-T indicating tuition and fees for 2016 in the amount of $6,011.• Health insurance for the family, through Taylor’s job, cost $6000 for all 12 months of 2016.o They paid deductibles and co-payments of $550.• Dental insurance for the family was $1200.• Car insurance for the family car was $600.

Tax Credits on 1040 to Reduce Tax Liability

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Applying the IRS Code Rules

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Applying the IRS Code Rules

Complete 6 problems that require you to apply research and knowledge of the rules and laws associated with at-risk or passive activity losses, as well as the individual alternative minimum tax (AMT).

Note: The assessments in this course are presented in sequence and must be completed in order. Do not complete Assessment 6 until you have submitted and received faculty feedback for Assessment 5.

Tax regulations are in a state of constant change. Being able to locate and correctly interpret and apply the information to a problem is a highly valued skill.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

Competency 1: Analyze the background of the federal income tax system.
- Correctly explain the tax effect in a specified scenario for the last year and the current year.
Competency 2: Analyze the basics of individual income tax return preparation.
- Correctly calculate the initial basis, allowed losses, and ending at-risk amounts.
- Correctly explain how to treat a loss on a federal income tax return.
- Correctly calculate what can be deducted on a final income tax return.
- Correctly calculate the loss disallowed by at-risk rules and how much of the loss is disallowed by the passive loss rules.
- Correctly calculate itemized deductions for AMT purposes and identify the amount of the AMT adjustment.

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Context

There is a separate tax system from the one you have been studying. The goal of this second system is to identify individual and corporate taxpayers who might escape paying taxes by using the Internal Revenue Code’s advanced tax incentives and programs. This alternative minimum tax (AMT) system employs rules based on a taxpayer’s AMT income. As you will learn, little income escapes the IRS.

Over the coming decade, a growing number of taxpayers will become liable for the AMT. Rather than affecting only high-income taxpayers who would otherwise pay no tax, the AMT has extended its reach to many upper-middle-income households. As more taxpayers incur the AMT, there will likely be increased pressure to reduce or eliminate the tax (CBO, 2010).

Questions to Consider

epen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

What are some advantageous rules individual taxpayers can employ to avoid the AMT?
How far in advance should a taxpayer develop a tax strategy?
Is developing a tax strategy something only high-income people should do?

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Resources

Required Resources

The following resources are required to complete the assessment.

Assessment 6 Problems: Applying the IRS Code In a Word document, provide complete answers with explanations to the problems below.

Problem 1

In 2014, Matthew contributes equipment with an adjusted basis of $40,000 and a FMV of $36,000 to Construction Limited Partnership (CLP) in return for a 3% limited partnership interest. Matthew’s share of CLP income and losses for the year were as follows:

Interest $ 1,000

Dividends 600

Capital gains 1,800

Ordinary loss (8,650)

CLP had no liabilities. What are Matthew’s initial basis, allowed losses, and ending at-risk amount?

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Problem 2

During the current year, Ben worked 1,500 hours as a tax consultant and 500 hours as a real estate agent. His one other employee (his wife) worked 350 hours in the real estate business. Ben earned $60,000 as a tax consultant, and together the couple lost $18,000 in the real estate business. How should Ben treat the loss on his federal income tax return?

Problem 3

Chrystal died owning an interest in a passive activity property. The property had an adjusted basis of $270,000, a fair market value of $284,000, and suspended losses of $25,000. What can be deducted on her final income tax return?

Problem 4

Howard has a $76,000 loss from an investment in a partnership in which he does not participate. His basis in the interest is $70,000.

a. How much of the loss is disallowed by the at-risk rules?

b. How much of the loss is disallowed by the passive loss rules?

Problem 5

Roberta gave her daughter a passive activity last year that had an adjusted basis of $37,500. The activity had suspended losses of $17,500 and a fair market value of $60,000. In the current year, her daughter realized income of $9,000 from the passive activity. What is the tax effect on Roberta and her daughter last year and in the current year?

Problems are continued on the next page

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Problem 6

Create a table for the answer to this problem. Include these categories: AMT; Regular Tax: Adjustment.

Charles had the following itemized deductions in 2014:

State income taxes $3,000

Charitable contributions 4,900

Mortgage interest (personal residence) 14,000

Medical expenses [$8,000-(7.5% ×$75,000)] 2,375

Miscellaneous [$3,200-(2%×$75,000)] 1,700

What are Charles’ itemized deductions for AMT purposes?
What is the amount of the AMT adjustment?

Internet Resources

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IRS.gov. (n.d.). Retrieved from http://www.irs.gov/
IRS. (n.d.). Interactive tax assistant. Retrieved from http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1
IRS. (n.d.). Tax trails. Retrieved from www.irs.gov/Individuals/Tax-Trails%2d%2d%2dMain-Menu

Wiley. (2012). Wiley registered tax return preparer exam review. Hoboken, NJ: Author.
Halperin, D. I., & Warren, A. C., Jr. (2014). Understanding income tax deferral. New York University Tax Law Review, 67 Tax L. Rev. 317.
Dungan, A., & Parisi, M. (2014). Individual income tax rates and shares, 2011: Statistics of income. SOI Bulletin, 33(4), 5–50.
Flynn, K. E., Belak, P., & Soltis, G. (2014). Understanding individual tax compliance: Advanced deductions and related issues. Journal of Business Case Studies, 10(4), 425–440.

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Internet Resources

lynda.com. (n.d.). Income tax fundamentals: Accounting tutorials. Retrieved from http://www.lynda.com/Business-Accounting-tutorials/Income-Tax-Fundamentals/188210-2.html
IRS. (n.d.). IRS videos. https://www.youtube.com/user/irsvideos.
- The IRS has a channel on YouTube devoted to income tax information in a video format. There are numerous videos available to help you with the course assessments. Videos are available with closed captions and in ASL and multilingual versions. You can search this channel by topic.

Cruz, A., Deschamps, M., Niswander, F., Prendergast, D., Schisler, D., & Trone, J. (2016). Fundamentals of taxation 2016 [with taxation software] (9th ed.). New York, NY: McGraw-Hill.

Chapter 13, “At-Risk/Passive Activity Loss Rules and the Individual Alternative Minimum Tax.”

Assessment Instructions

For this assessment, complete the following:

Download the Assessment 6 Problems document, linked in the Resources under the Required Resources heading.
Using the primary source of IRS.gov and the IRS Interactive Tax Assistant and Tax Trails (linked in the Resources under the Required Resources heading), locate and interpret regulations and publications that relate to each problem.
Record your answers to the problems in a Word document.
Provide an explanation for each answer.
Submit the Word document containing your answers to the problems and the explanations for your answers.

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Inclusions, Exclusions, and AGI Assessment 3

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Inclusions, Exclusions, and AGI Assessment 3

Overview

Apply the rules associated with inclusions and exclusions to an individual’s gross income and apply another set of code rules to determine a taxpayer’s AGI.Note: Completing a tax form requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order. Incorrect entries in previous assessments will result in incorrect entries in future assessments. Do not complete Assessment 3 until you have submitted and received faculty feedback for Assessment 2.

Understanding the ever-changing rules for including and excluding income in the calculation of a taxpayer’s adjusted gross income (AGI) for income tax purposes is a skill that is developed through practice.By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 2: Analyze the basics of individual income tax return preparation.o Analyze official rules and instructions to correctly calculate deductible self-employment taxes.o Interpret official rules and instructions to record correct entries on tax forms.o Apply rules and instructions to correctly compute AGI for the year.

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Context

I don’t know what to do or where to turn in this taxation matter. Somewhere there must be a book that tells all about it, where I could go to straighten it out in my mind. But I don’t know where the book is, and maybe I couldn’t read it if I found it.” — Warren G. Harding, the 29th President of the United States, 1921–1923.

About now, you may be nodding your head in agreement with President Harding’s quote about the complexity of the tax code, with its many inclusions and exclusions. What started out as a simple document, designed to raise capital to make the new nation independent from the British Empire, has evolved over the centuries and decades into a complex maze of rules and regulations.Nowhere is that more pronounced than in the rules for including and excluding income in the calculation of a taxpayer’s adjusted gross income (AGI) for income tax purposes.

Gross income is commonly defined as the amount of a company’s or a person’s income before all reductions, except that which is specifically excluded by the Internal Revenue Code, before taking deductions or taxes into account. Since not all of an individual’s personal income is subject to taxation, one must crack open the voluminous tax codebook to discover exclusions from the tax collector’s grasp.

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Question to Consider

To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.The primary purpose of the Internal Revenue Service is to raise revenue for the government. However, the U.S. Congress has chosen to exempt certain income from taxation, such as scholarships, gifts, life insurance proceeds, municipal bond interest, and employee fringe benefits.

• Why you believe Congress has provided these exemptions to taxpayers?

• Which of the additional exemptions would you challenge?

• Which of the additional exemptions do you agree with?

Resources

Required Resources

The following resources are required to complete the assessment.

Internet Resources

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Download the appropriate forms and publications from the IRS Web site to complete this assessment.•IRS.gov. (n.d.). Retrieved from http://www.irs.gov/• IRS. (n.d.). Interactive tax assistant. Retrieved from http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1• IRS. (n.d.). Tax trails. Retrieved from www.irs.gov/Individuals/Tax-Trails%2d%2d%2dMain-Menu

FORM 1040: INCOME

This section of the Form 1040 encompasses the major components of total income and many types of nontaxable income for the filing taxpayer(s). Major components of this section include interest income, dividend income, unemployment compensation, social security benefits, and other types of income received by the taxpayer(s).
Licensed under a Creative Commons Attribution 3.0 License.

FORM 1040: ADJUSTED GROSS INCOME

Filing taxpayers can deduct additional items from total income for purposes of computing AGI. These items are termed “for AGI deductions”, or “above the line” deductions. The line refers to the AGI line on Form 1040.
The major items covered in this section of the Form 1040 are student loan interest, health savings accounts, moving expenses, self-employment taxes, early withdrawals from savings, and deductions for alimony paid.
Licensed under a Creative Commons Attribution 3.0 License.

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Resources

J. K. Lasser Institute. (2015). Your income tax 2015: For preparing your 2014 tax return.

Hoboken, NJ: Wiley.J. K. Lasser Institute. (2014). Your income tax 2014: For preparing your 2013 tax return.

Hoboken, NJ: Wiley.Drake, A. E. (2015, January 5). Reducing your taxes before the end of the year. Mondaq Business Briefing.Vento, J. J. (2014, March).

Beating the tax man. USA Today, 142(2826), 58–59.

Ashton, M. (2015, March 5). The forgotten tax deductions.

Mondaq Business Briefing.

Halperin, D. I., & Warren, A. C., Jr. (2014). Understanding income tax deferral.

New York University Tax Law Review, 67 Tax L. Rev. 317.

Internet Resources

Access the following resources by clicking the links provided.

Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.
lynda.com. (n.d.). Income tax fundamentals: Accounting tutorials. Retrieved from http://www.lynda.com/Business-Accounting-tutorials/Income-Tax-Fundamentals/188210-2.htmlIRS. (n.d.). IRS videos. https://www.youtube.com/user/irsvideos.The IRS has a channel on YouTube devoted to income tax information in a video format. There are numerous videos available to help you with the course assessments. Videos are available with closed captions and in ASL and multilingual versions.

You can search this channel by topic.
Cruz, A., Deschamps, M., Niswander, F., Prendergast, D., Schisler, D., & Trone, J. (2016). Fundamentals of taxation 2016 [with taxation software] (9th ed.). New York, NY: McGraw-Hill.Chapter 3,

“Gross Income: Inclusions and Exclusions.”Chapter 4, “Adjustments for Adjusted Gross Income.”

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Assessment Instructions

Incorrect entries in Assessment 2 affect the entries in Assessment 3.
For this assessment, use information and publications from IRS.gov and the other IRS resources linked in the Resources under the Required Resources heading to determine the adjusted gross income (AGI) for Jacob and Taylor Weaver, based on the provided scenario.

Complete the following:

Read the information in the scenario below.Download the appropriate forms and publications from IRS.gov.Enter information from Assessment 2, Schedules C and SE, into the 1040 form.Apply the rules for adjustments to adjusted gross income.Enter applicable information from the scenario into the 1040 form.Interpret official rules and instructions to record correct entries on the tax form.Calculate the AGI for the Weavers.Submit the tax form.

Scenario

Jacob and Taylor Weaver, ages 45 and 42 respectively, are married and are filing jointly in2016. They have three children, Ashley, age 9; Patrick, age 6; and John, age 18.Social Security numbers are: Jacob, 222-33-4444; Taylor, 555-66-7777; Ashley, 888-99-1234; Patrick, 789-56-4321; John, 123-45-6789. Taylor works part-time as a paralegal.She earned $26,000 in 2016.Taxes withheld: $4,200 withheld.Estimated tax payments: $25,000.$350 paid with their 2015 state tax return.Jacob and Taylor bought their first house in 2016.

Home mortgage interest: $7,246.Property tax: $2,230.Federal income withholding: $2,350.Charities: $4,500.$435 to rent a moving truck.$8,000 to put new siding on the house.$11,600 for child care expenses ($5,800 for each child).It was paid to Lil Tigers Daycare, 1115 S. Garrison St., Muncie, IN 47305 (EIN 98-7654321).Taylor is a part-time student at Ball State University in Muncie.She received a 1098-T indicating tuition and fees for 2016 in the amount of $6,011.Health insurance for the family, through Taylor’s job, cost $6000 for all 12 months of 2016.They paid deductibles and co-payments of $550.

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