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Taxation for Decision Makers, 2019 Edition

Taxation for Decision Makers, 2019 Edition

Shirley Dennis-Escoffier, Karen A. Fortin

ISBN: 978-1-119-49722-6

Jun 2018

656 pages

$76.00

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Taxation for Decision Makers, 2019 Edition is designed for a one-semester introductory tax course at either the undergraduate or graduate level. It is ideal for an MBA course or any program emphasizing a decision-making approach. This text introduces all tax topics on the CPA exam in only 12 chapters. This text covers basic taxation of all taxable entities: individuals, corporations, S corporations, partnerships, and fiduciary entities, emphasizing a balance between concepts and details. Tax concepts and applications are presented in a clear, concise, student-friendly writing style with sufficient technical detail to provide a foundation for future practice in taxation and consulting while not overwhelming the student with seldom-encountered details.

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Preface xx

About the Authors xxv

PART I Introduction to Taxation and Its Environment

1 An Introduction to Taxation 2

Setting the Stage—An Introductory Case 3

1.1 An Introduction to Taxes 3

1.2 Types of Tax Rate Systems 12

1.3 Characteristics of a Good Tax 15

1.4 The Taxing Units and the Basic Income Tax Model 18

1.5 Choice of Business Entity 29

Revisiting the Introductory Case 38

Summary 38

Key Terms 39

Test Yourself 39

Problem Assignments 40

Answers to Test Yourself 44

2 The Tax Practice Environment 45

Setting the Stage—An Introductory Case 46

2.1 Tax Compliance 46

2.2 Professional Responsibilities and Ethics 54

2.3 Tax Planning 59

2.4 Tax Research 69

Revisiting the Introductory Case 89

Summary 89

Table of Contents ix

Key Terms 90

Test Yourself 90

Problem Assignments 90

Answers to Test Yourself 97

Appendix: Authorities for Sample Research Problem 97

PART II Income Expenses and Individual Taxes

3 Determining Gross Income 108

Setting the Stage—An Introductory Case 109

3.1 What Is Income? 109

3.2 When Is Income Recognized? 112

3.3 Who Recognizes the Income? 118

3.4 Sources of Income 119

3.5 Exclusions 134

3.6 Expanded Topics—Jurisdictional Issues 139

Revisiting the Introductory Case 142

Summary 142

Key Terms 143

Test Yourself 143

Problem Assignments 144

Answers to Test Yourself 152

4 Employee Compensation 153

Setting the Stage—An Introductory Case 154

4.1 Employee Compensation 154

4.2 Employee Fringe Benefits 161

4.3 Employee Stock and Stock Options 174

4.4 Deferred Compensation and Retirement Planning 179

4.5 Self-Employed Individuals 187

4.6 Expanded Topics—Foreign Assignments 191

Revisiting the Introductory Case 195

Summary 195

Key Terms 196

Test Yourself 197

Problem Assignments 198

Answers to Test Yourself 205

5 Deductions for Individuals and Tax Determination 206

Setting the Stage—An Introductory Case 207

5.1 The Individual Tax Model 207

5.2 Deductions for Adjusted Gross Income 209

5.3 Standard Deduction 212

5.4 Itemized Deductions 217

5.5 Qualified Business Income Deduction 228

5.6 Dependents 230

5.7 Tax Credits 233

5.8 Computing the Tax 239

5.9 Payment of Tax and Filing the Return 247

Revisiting the Introductory Case 250

Summary 253

Key Terms 253

Test Yourself 253

Problem Assignments 254

Answers to Test Yourself 264

PART III Business and Property Concepts

6 Business Expenses 266

Setting the Stage—An Introductory Case 267

6.1 Criteria for Deductibility 267

6.2 Timing of Deductions 271

6.3 Costs of Starting a Business 275

6.4 Operating Expenses 277

6.5 Limited Expense Deductions 285

6.6 Expanded Topics—Book/Tax Differences 292

Revisiting the Introductory Case 301

Summary 303

Key Terms 304

Test Yourself 304

Problem Assignments 305

Answers to Test Yourself 314

7 Property Acquisitions and Cost Recovery Deductions 316

Setting the Stage—An Introductory Case 317

7.1 Capital Expenditures 317

7.2 MACRS 322

7.3 Special Expensing Provisions 329

7.4 Provisions Limiting Depreciation 334

7.5 Depletion 338

7.6 Amortization 339

Revisiting the Introductory Case 341

Summary 342

Key Terms 342

Test Yourself 343

Problem Assignments 344

Answers to Test Yourself 351

PART IV Property Dispositions

8 Property Dispositions 354

Setting the Stage—An Introductory Case 355

8.1 Determining Gain or Loss on Dispositions 356

8.2 Disposition of Capital Assets 363

8.3 Disposition of Section 1231 Property 371

8.4 Mixed-Use Property 378

8.5 Special Rules for Small Business Stock 379

8.6 Sale of Principal Residence—Section 121 382

8.7 Navigating Individual Capital Gains Tax Rates 385

Revisiting the Introductory Case 388

Summary 389

Key Terms 390

Test Yourself 390

Problem Assignments 391

Answers to Test Yourself 400

9 Tax-Deferred Exchanges 401

Setting the Stage—An Introductory Case 402

9.1 Basics of Tax-Deferred Exchanges 402

9.2 Like-Kind Exchanges—Section 1031 404

9.3 Involuntary Conversions 409

9.4 Other Tax-Deferred Exchanges or Dispositions 418

9.5 Asset Transfers to Businesses 422

9.6 An Introduction to Corporate Reorganizations 431

Revisiting the Introductory Case 432

Summary 432

Key Terms 433

Test Yourself 433

Problem Assignments 434

Answers to Test Yourself 443

Appendix: Corporate Reorganizations 444

PART V Business Taxation

10 Taxation of Corporations 452

Setting the Stage—An Introductory Case 453

10.1 Introduction to Corporations 453

10.2 Taxation of C Corporations 457

10.3 Corporate Dividend Distributions 468

10.4 Corporate Redemptions and Liquidations 475

10.5 Issues for Closely Held Corporations 480

10.6 Consolidated Returns 484

Revisiting the Introductory Case 486

Summary 487

Key Terms 487

Table of Contents xvii

Test Yourself 488

Problem Assignments 488

Answers to Test Yourself 496

Appendix: Exempt Organizations 496

11 Sole Proprietorships and Flow-Through Entities 501

Setting the Stage—An Introductory Case 502

11.1 Introduction to Flow-Through Business Entities 502

11.2 The Sole Proprietorship 503

11.3 Partnerships 509

11.4 S Corporation Characteristics 528

11.5 Expanded Topics—The Passive Deduction Limitations 540

Revisiting the Introductory Case 544

Summary 545

Key Terms 545

Test Yourself 546

Problem Assignments 547

Answers to Test Yourself 558

PART VI Wealth Taxation

12 Estates Gifts and Trusts 560

Setting the Stage—An Introductory Case 561

12.1 Overview of Wealth Transfer Taxation 561

12.2 The Federal Gift Tax 566

12.3 Tax Consequences for Donees 574

12.4 The Taxable Estate 577

12.5 Transfer Tax Planning 582

12.6 Fiduciary Income Tax Issues 585

12.7 Expanded Topics—The Tax Calculations 588

Revisiting the Introductory Case 592

Summary 592

Key Terms 593

Test Yourself 593

Problem Assignments 594

Answers to Test Yourself 601

Appendix Selected Tax Tables for 2018 and 2017 603

Corporate Tax Rates for 2018 and 2017 603

Individual Income Tax Rate Schedules for 2018 and 2017 603

Social Security and Medicare Taxes for 2018 and 2017 605

Standard Deductions for 2018 and 2017 606

Tax Rates for Estates Gifts and Trusts for 2018 and 2017 606

Depreciation Tables 607

Present Value and Future Value Tables 609

Index 613

  • The Tax Cuts and Jobs Act passed by Congress in December 2017 is the most significant change to tax law in more than thirty years. This text has been completely updated for all changes made by this Act as well as the Bipartisan Budget Act of 2018 and all other new pronouncements issued in the first several months of 2018. 
  • In addition to updating all chapters for changes to the tax law, Chapter 1 was modified to introduce the changes made to the taxation of corporations and flow-through businesses. The decision-making focus of this text is introduced in this first chapter through simple problems on the choice of business form. 
  • New tax forms are introduced in several chapters of the text. 
  • A complete set of filled-in forms for a C corporation, partnership, S corporation, and sole proprietorship are also included on the companion website for this text. 
  • Finally, the authors went over the text line-by-line, not only to update it, but to improve readability.
• Engage Learning Platform: combines learning resources, auto-graded assignments, and time management tools customized to each instructor’s teaching style to help students do better in their course.
• Balanced Approach: This text strikes a balance between concepts and details by including sufficient technical detail to provide a foundation for future practice in taxation and consulting while not overwhelming the student with seldom-encountered technicalities. The importance of tax planning is woven into each chapter with margin icons highlighting planning opportunities.
• Promotion of Critical Analysis and Decision-Making Skills: The chapter-opening case introduces key concepts which emphasize the most important topics that students need to master. These cases are then revisited at the end of each chapter for greater reinforcement.
• Comprehensive and Flexible: Chapter arrangement and topic presentation make it easy to change the sequence of chapters, while the Expanded Topics section included at the end of several chapters contain more advanced topics allowing instructors to achieve the level of rigor appropriate for each particular class.
• All chapters updated to include relevant changes in tax law including inflation adjustments, new cases, and new rulings through the first quarter of 2018.
• Additional examples included with completed tax forms.
• All chapters reviewed to ensure that all tax topics tested on the new CPA exam are introduced and adequately addressed in the text.
• Chapter 1 incorporates additional coverage of individual taxation to provide adequate background for those classes with primary emphasis on taxation of entities.