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Taxation of Individuals 2017 8th Edition Spilker Solutions Manual
Taxation of Individuals 2017 8th Edition Spilker Solutions Manual
Chapter 6
Individual Deductions
INSTRUCTOR’S MANUAL
Learning Objectives
1. Identify the common deductions necessary for calculating adjusted gross income (AGI).
2. Describe the different types of itemized deductions available to individuals and compute itemized
deductions.
3. Explain the operation of the standard deduction, determine the deduction for personal and
dependency exemptions, and compute taxable income.
Teaching suggestions
In Chapter 5, we discussed the calculation of gross income and identified several specific types of taxable
income and exclusions. In Chapter 6, we describe the deductions allowed in the computation of taxable
income. It is important to emphasize that taxpayers are only allowed to deduct expenditures if there is a
specific tax law authorizing the deductions. Of course, Congress grants many deductions for taxpayers for
a variety of reasons, and these deductions appear in one of two places in the individual income tax
formula. Deductions “for AGI” (also called deductions “above the line”) are subtracted directly from
gross income. In contrast, deductions “from AGI” (also called deductions “below the line” or “itemized”
deductions) are subtracted from AGI.
Deductions for AGI are preferred over deductions from AGI because these deductions reduce taxable
income dollar for dollar. An indirect benefit of deductions for AGI is that these deductions reduce AGI.
Because many of the limitations on tax benefits for higher income taxpayers are based upon AGI,
deductions for AGI reduce these limitations thereby increasing potential tax benefits. In contrast to
deductions for AGI, itemized deductions will have no effect on taxable income unless the total exceeds
the standard deduction. Students often confuse the location of the deduction with the deduction rule. So, a
good rule is to emphasize the order of the questions. First, determine if the expense is deductible. Next,
determine the location of the deduction (for or from).
If the students have already been exposed to the calculation of taxable income for other entities (e.g.,
corporations, partnerships, etc.), it might be helpful to discuss which deductions and limitations are
specific to individuals relative to other entities. For example, the distinction between for and from AGI
deductions does not exist for corporations. If the objective of the course is a survey of tax rules (as
opposed to an in depth understanding of the specific deductions), it might be preferable to skip the details
of itemized deductions. A good approach might be to have students read the first part of the chapter and
skim the second part (itemized deductions).
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Instructor’s Manual – McGraw-Hill’s Taxation, by Spilker et al.
Assignment Matrix
Learning Text feature
objective
Tax Forms
Research
Planning
Problem
Time
LO1
LO2
LO3
Difficulty
DQ6-1 10 min. Easy X
DQ6-2 10 min. Easy X
DQ6-3 10 min. Easy X
DQ6-4 20 min. Medium X
DQ6-5 15 min. Medium X
DQ6-6 45 min. Medium X X
DQ6-7 15 min. Medium X
DQ6-8 15 min. Medium X
DQ6-9 10 min. Medium X
DQ6-10 15 min. Medium X
DQ6-11 10 min. Easy X
DQ6-12 15 min. Medium X
DQ6-13 15 min. Medium X
DQ6-14 10 min. Medium X
DQ6-15 45 min. Medium X X
DQ6-16 20 min. Medium X
DQ6-17 10 min. Medium X
DQ6-18 10 min. Medium X
DQ6-19 45 min. Medium X X
DQ6-20 10 min. Medium X
DQ6-21 10 min. Medium X
DQ6-22 10 min. Medium X
DQ6-23 20 min. Medium X
DQ6-24 15 min. Medium X
DQ6-25 20 min. Medium X
DQ6-26 45 min. Medium X X
DQ6-27 20 min. Medium X
DQ6-28 15 min. Medium X
DQ6-29 15 min. Medium X
DQ6-30 15 min. Medium X
DQ6-31 15 min. Medium X
DQ6-32 15 min. Medium X
DQ6-33 15 min. Medium X
DQ6-34 30 min. Medium X X
DQ6-35 30 min. Medium X X
P6-36 15 min. Easy X
P6-37 15 min. Medium X
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Instructor’s Manual – McGraw-Hill’s Taxation, by Spilker et al.
Lecture Notes
1) Deductions For AGI
a) Congress allows taxpayers to claim a variety of deductions for AGI.
b) Deductions Directly Related to Business Activities
i) Work through Example 6-1.
ii) Refer to Exhibit 6-1 for Individual Business and Investment Expense Deductions for AGI and
from AGI.
iii) Trade or business expenses
iv) Refer to Exhibit 6-2 Parts I and II from Schedule C Profit or Loss from Business.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Instructor’s Manual – McGraw-Hill’s Taxation, by Spilker et al.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
6-4
Instructor’s Manual – McGraw-Hill’s Taxation, by Spilker et al.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
6-5
Instructor’s Manual – McGraw-Hill’s Taxation, by Spilker et al.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Instructor’s Manual – McGraw-Hill’s Taxation, by Spilker et al.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Instructor’s Manual – McGraw-Hill’s Taxation, by Spilker et al.
Ethics
From page 6-23:
Discussion points:
If Sabrina gets an appraisal that states the value of the clothes is $6,000, how much tax deduction
will she receive for the clothes?
If Sabrina’s clothes are worth $6,000, is she better off getting the appraisal or reporting a
deduction of $4,900? What information would you need to answer this question?
Does Sabrina’s reporting $4,900 violate tax law and/or ethical standards?
Do you think the IRS has reason to be suspicious of contributions that fall just below $5,000?
Why?
Class Activities
o Deductions: A great activity for this chapter is to compile a list of the deductions that are to be
emphasized in the chapter (business, rental/royalty, employee, education, medical, charitable,
etc.) and have students prepare a set of examples for each type of deduction. Alternatively,
prepare a list of expenditures and have students determine whether the expenditure is deductible
and, if so, where the deduction is claimed.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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