Federal Taxes &Management Decsion Essay

463 WordsMar 30, 20152 Pages
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 16th Amendment was passed by Congress on July 12, 1909, and states, "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment amount the several States, and without regard to any census or enumeration." This serves as the basis for the income tax laws of the United States . Chapter 2 (5 pts) 2. Explain the two "safe harbors" available to an Individual taxpayer to avoid a penalty for underpayment of estimated tax. An individual taxpayer may avoid penalties associated with the underpayment of estimated tax if he or she makes four equal, quarterly installments that are equal to 90% of the current year tax or 100% (110% if AGI is over $150 K) of the prior year tax. 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 is reported on page 1 of Form 1040 and reduces adjusted gross income (AGI). A below-the-line deduction (i.e., itemized deductions) is claimed only if a taxpayer is choosing to itemize his or her deductions rather than claim the standard deduction. An above-the-line deduction is more valuable because many tax benefits, credits, deductions, and so forth are phased out based on AGI; therefore, the lower your AGI is, the greater your likelihood is of qualifying for other benefits, credits, and deductions. Further, there can be an overall limitation on itemized deductions that can scale back what you are able to deduct. Additionally, if you claim the standard

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