Acct553 Week 1 Homework Essay

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ACCT553 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 Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. http://www.gpo.gov/fdsys/pkg/GPO-CONAN-1992/pdf/GPO-CONAN-1992-10-17.pdf Basically, the 16th Amendment gives the government the ability to enact and enforce taxes on the public. The taxes are used as the government seems fit, and they are not flat rate taxes, but rather a percentage of income. 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 is based on your total tax in the current year. If your payments equal or exceed 90% of your tax in the current year, you can escape a penalty. The second safe harbor is based on your total tax in the immediately preceding tax year. If your payments equal or exceed 100% (110% if your prior year's adjusted gross income was more than $150,000, or $75,000 if married filing separately) of your prior year's tax, you can escape a penalty. 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 items that are subtracted before AGI is computer. Below the line are deducted from AGI after it has been computed. As a taxpayer, and a single one, I think the deductions above the line are more valuable. They reduce my taxable income and make my taxes lower. Chapter 13 (5 pts)

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