McGraw-Hill's Taxation of
Individuals 2025 By Spilker,
Ayers, Weaver, Barrick,
Robinson, Worsham
(Solutions Manual All
Chapters, 100% Original
Verified, A+ Grade)
All Chapters Solutions
Manual Supplement files
download link at the end of
this file.
Part 1: Ch 8-14: Page 2-443
Part 2: Ch 1-7: Page 444-735
, Part 1
Chapter 8
Individual Income Tax Computation and Tax Credits
SOLUTIONS MANUAL
Discussion Questions
1. [LO 1] What is a tax bracket? What is the relationship between filing status and the width of
the tax brackets in the tax rate schedule?
A tax bracket is a range of taxable income that is taxed at a specified tax rate. Because only the
income in the particular range is taxed at the specified rate, tax brackets are often referred to as
marginal tax brackets or marginal tax rates. The level and width of the brackets depend on the
taxpayer’s filing status. The tax rate schedules include seven tax rate brackets. The rates for
these brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. In general, the tax brackets are
widest for Married filing jointly (for example, more income is taxed at 10%), followed by Head
of household, Single, and then Married filing separately (the brackets for Married filing
separately are exactly one-half the width of the brackets for Married filing jointly, and the width
of the 10%, 12%, 22%, 24% and 32% brackets for Single and Married filing separately are the
same).
2. [LO 1] In 2024, for a taxpayer with $50,000 of taxable income, without doing any actual
computations, which filing status do you expect to provide the lowest tax liability? Which
filing status provides the highest tax liability?
For a taxpayer with $50,000, the married filing jointly filing status should provide the lowest tax
liability in 2024 because the MFJ tax rate schedule taxes more of this income at 10% and 12%
than the other rate schedules (the 10% and 12% tax brackets are wider). Conversely, the
married filing separately and the single filing statuses will generate the highest tax liability
because a smaller amount of income is taxed at 10% and 12% (the 10% and 12% tax brackets
are narrower) than other tax rate schedules.
3. [LO 1] What is the tax marriage penalty and when does it apply? Under what
circumstances would a couple experience a tax marriage benefit?
A marriage penalty (benefit) occurs when, for a given level of income, a married couple has a
greater (lesser) tax liability when they use the married filing jointly tax rate schedule to
determine the tax on their joint income than they would have owed (in total) if each spouse
would have used the single tax rate schedule to compute the tax on each spouse’s individual
income. The marriage penalty applies to couples with two wage earners with high incomes while
a marriage benefit applies to couples with one breadwinner.
4. [LO 1] Once they’ve computed their taxable income, how do taxpayers determine their
regular tax liability? What additional steps must taxpayers take to compute their tax liability
when they have preferentially taxed income?
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Once taxpayers have determined their taxable income, they should split the income into two
portions: (1) ordinary income and (2) income taxed at preferential rates (if any), and compute
tax on each portion separately.
Taxpayers compute the tax on the ordinary income portion by applying the appropriate tax rate
schedule (based on their filing status).
For dividends and capital gains taxed at preferential tax rates, the preferential tax rate is 0
percent, 15 percent, or 20 percent. The preferential tax rates vary with the taxpayer’s filing
status and income as determined by tax brackets specific for preferential income. See Appendix
C for the tax brackets by filing status that apply to preferentially taxed capital gains and
dividends.
A taxpayer’s total regular income tax liability is the sum of the tax on ordinary income and the
tax on preferentially taxed income.
5. [LO 1] {Research} Are there circumstances in which preferentially taxed income (long-
term capital gains and qualified dividends) is taxed at the same rate as ordinary income?
Explain.
Generally, no. This is why we refer to the income as preferentially taxed income. However, there
are certain types of long-term capital gains that are taxed at a maximum rate of 25%
(unrecaptured §1250 gain) and 28% (capital gains from collectibles). These gains are taxed at
the taxpayer’s marginal ordinary rate unless the ordinary rate exceeds the maximum rate. Then
these gains are taxed at the maximum rate. See §1(h)(1).
6. [LO 1] Augustana received $100,000 of qualified dividends this year. Under what
circumstances might the entire $100,000 of income not be taxed at the same rate?
The qualified dividend will be taxed at different rates if the amount of Augustana’s taxable
income including the dividend (e.g., $550,000) falls within a different preferential tax bracket
than her taxable income excluding the dividend (e.g., $450,000). In this scenario, part of
qualified dividends will be taxed at 20% and part will be taxed at 15%.
7. [LO 1] What is the difference between earned and unearned income?
Earned income is income earned by the taxpayer from services or labor. Unearned income is
from investment property such as dividends from stocks or interest from bonds.
8. [LO 1] What is the kiddie tax? Explain.
The kiddie tax is a tax using the parent’s marginal tax rate on the child’s unearned income in
excess of $2,600.
9. [LO 1] Does the kiddie tax eliminate the tax benefits gained by a family when parents
transfer income-producing assets to children? Explain.
No. Though the kiddie tax significantly limits the benefit of shifting income producing assets to
children, it does not eliminate it. The kiddie tax does not apply unless the child has unearned
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income in excess of $2,600 ($1,300 standard deduction plus an additional $1,300). That is,
parents can shift up to $2,600 of unearned investment income to a child without the child paying
the kiddie tax.
10. [LO 1] Does the kiddie tax apply to all children no matter their age? Explain.
No, the kiddie tax applies to children who have net unearned income in excess of $2,600 if the
children (1) are under age 18 at the end of the year, (2) are age 18 at the end of the year and do
not have earned income in excess of half of their support, or (3) are over age 18 and under age
24, are full-time students, and don’t have earned income in excess of half of their support
(excluding scholarships).
11. [LO 1] Lauren is 17 years old. She reports earned income of $3,000 and unearned income of
$6,200. Is it likely that she is subject to the kiddie tax? Explain.
Yes, Lauren is under age 18 at year end and her unearned income exceeds $2,600, so she is
subject to the kiddie tax. Note that the kiddie tax base is the child’s net unearned income. Net
unearned income is the lesser of the child’s gross unearned income minus $2,600 or the child’s
taxable income. In this case, Lauren’s taxable income is calculated as $9,200 gross income less
her standard deduction of $3,450 (earned income of $3,000 plus $450) = $5,750. Her gross
unearned income minus $2,600 is calculated as $6,200 less $2,600 = $3,600, which would be
taxed at her parents’ marginal tax rate. The remaining $2,150 would be taxed at Lauren’s
regular tax rate of 10%.
12. [LO 2] In very general terms, how is the alternative minimum tax system different from the
regular income tax system? How is it similar?
The AMT system is different in that it taxes a more broad or inclusive tax base than the regular
income tax. The AMT is designed to tax an income base that more closely reflects economic
income than does the regular income tax system. Many items that are deductible for regular tax
purposes are not deductible for AMT purposes. Further, certain types of income included in the
AMT base are not included in the regular income tax base. Also, the AMT rates are different
from those for the regular income tax. The AMT system is similar to the regular tax system in
that the starting point for computing the AMT tax base is regular taxable income. The AMT
system is also an income tax system that allows certain deductions from the income tax base.
13. [LO 2] Describe, in general terms, why Congress implemented the AMT.
Congress implemented the AMT to ensure that all taxpayers who were generating economic
income paid some minimum amount of tax each year. Prior to the AMT, the public perceived
high-income taxpayers to be able to reduce or eliminate their total tax liability by taking
excessive advantage of tax preference items such as exclusions, deferrals, and deductions. The
AMT was designed as a response requiring these high-income taxpayers to pay at least some tax.
14. [LO 2] Do taxpayers always add back the standard deduction when computing alternative
minimum taxable income? Explain.
No. Taxpayers add back the standard deduction only if they deducted it when computing their
regular taxable income (that is, they add it back when they did not itemize deductions).
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