Week 1 Homework
Please provide your answer to each question in the space provided below.
When finished, submit to the DropBox.
Chapter 1 (5 pts)
1. Briefly discuss the purpose of the Sixteenth Amendment.
The 16th Amendment allowed Congress to impose taxes on whatever source derived. The sourced could be direct or indirect and without regard to census. The purpose of the taxes was to help financially support the government.
Chapter 2 (5 pts)
2. Explain the two "safe harbors" available to an Individual taxpayer to avoid a penalty for underpayment of estimated tax.
The penalty can be avoided if the taxpayer can prove that the error was not done by willful misconduct. That the taxpayer was acting in good faith, this burden of proof lies with the taxpayer.
The two reason I chose.
1. The taxpayer records were destroyed in a casualty, such as fire or a super storm flood.
2. Death or serious illness to or in the immediate family of the taxpayer.
Chapter 3 (5 pts)
3. Explain the distinction between an "above the line" deduction (i.e. FOR AGI) and a below the line deduction (i.e. FROM AGI). Which one is more valuable?
Above the line deductions are deductions the IRS allows a taxpayer to take from their gross income to come to their adjusted gross income. These are more valuable because they reduce your tax liability.
Below the line deductions are deductions taken from the taxpayer’s adjusted gross income to arrive at the taxpayer’s taxable income.
This lowers the taxpayer’s taxable income.
Chapter 13 (5 pts)
What is an Installment Sale? Is it a form of income "deferral" ? When can't you elect this form of reporting?
Installment sale is the sale of a property where payment was rendered after the close of the tax year that the property was sold.
Yes, it may be used on a cash basis by the taxpayer to defer gain or to spread the gain over several periods.