Assignment Chapter 1 An

1

Chapter 1: An Introduction to Taxation and Understanding the Federal Tax Law

Question 2

In the following independent situations, is the tax position of the taxpayer likely to change? Explain

why or why not.

a. John started renting out a space room in his home.

Ans: Yes, because once John rents out the space room, it already can be considered for

commercial use. Taxes like property tax and income tax will be charged for John.

b. Theresa quit her job as a staff accountant and established her own practice as a CPA.

Ans: Yes, somehow it will have some effect. Since Theresa has quit her job as a staff

accountant and established her own CPA, all of her taxes slightly change due to she is

considered a self-employed worker. Moreover, she needs to issue to the state agency all of

her business income, losses, and its cost.

c. Paul’s employer transferred him from its California office to an office in Florida.

Ans: Yes, because Paul has been transferred from California to Florida office. Since Paul’s

position has changed, then his pay also will be affected according to the state. But, Paul

has the right to claim for moving cost due to his job related because not his intention to

move to Florida.

Question 3

Marvin is the executor and sole heir of his aunt’s estate. The estate includes her furnished home,

which Marvin is considering converting to rental property to generate additional cash flow.

What are some of the tax considerations Marvin may confront?

2

Ans: Marvin will confront income tax, personal property tax, and real estate tax. It depends on

how much his aunt’s estate value. Since Marvin planning to make the estate for commercial use,

therefore he has to issue any rent received from the property to the tax agency because there might

have an increase in the real estate tax levied by the tax agency. Besides that, all of his personal

property tax can be imposed on the equipment or furniture.

Question 7

Distinguish between taxes and that are regressive and those that are progressive.

Regressive Tax

Progressive Tax

• Has the same percentage on goods and

products without emphasis on buyer’s

income and it will difficult on low

income buyers.

• Implies greater percentage of taxation

on higher income buyers with the

common sense implies where buyer

with higher income can afford to pay

more.

Question 9

The Adams Independent School District wants to sell a parcel of unimproved land that it does

not need. Its three best officers are as follows: from the state’s Department of Public Safety

(DPS), $2,300,000; from the Second Baptist Church, $2,200,000; and from Baker Motors,

$2,100,000. DPS would use the property for a new state highway patrol barracks. Second Baptist

would start a church school, and Baker would open a car dealership. If you are the financial

adviser for the school district, which offer would you prefer? Why?

Ans: First, all officer’s offer is good with a different purpose to build on. In my opinion, among

the offers given, I prefer Baker’s offer by opening a car dealership. The reason I choose Baker’s

offer because I believe in future car dealership will gain tax revenues and it benefits more in a

long-term investment due to long-term perspectives.

Question 11

Sophia lives several blocks from her parents in the same residential subdivision. Sophia is

surprised to learn that her ad valorem property taxes for the year were raised but those of her

parents were lowered. What is a possible explanation for the difference?

Ans: In my point of view, this case happens because maybe Sophia did some renovation with her

residential by adding capital improvements such as mini basketball ball court or swimming pool

is a common choice make. Therefore, her ad valorem property taxes increase and the tax agency

considered Sophia able to afford the tax. In the other hand, Sophia’s parent residence taxes are

lowered which the possible reason is her parents have retired and become a retiree.

Question 15

What is the difference between an excise tax and a general sales tax?

General Sales Tax

Excise Tax

▪ Consist of all general taxes levied at

▪ Is a legislated tax on specific goods