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 purpose of the Sixteenth Amendment of the Constitution is to give the U.S. government the authority to raise revenue through a federal income tax “from whatever source derived.”
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 first “safe harbor” available to an individual taxpayer to avoid a penalty for underpayment of estimated tax would be if the payments of estimated tax are at least as large as 90 % of the tax shown on the return or 100% (110% if adjusted gross income for 2002 and later exceeds 150k) of the tax shown on the return of the preceding taxable year (assuming it showed a tax liability and covered a taxable year of 12 months.) The second “safe harbor” would be if the payments of estimated tax are at least as large as an amount equal to 90% of the tax for the taxable year computed by annualizing the taxable income received for the months in the taxable year ending before the month in which the installment is required to be paid.
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?
An above the line deduction, also called “deduction for adjusted gross income,” includes those deductions that directly reduce gross income and are specifically allowed by law. Below the line deductions, also called “from adjusted gross income,” are deductions that may be determinable upon adjusted gross income, which has already received specific deductions allowed by law. A couple of above the line deductions include losses on the exchange