Pearson s Federal Taxation Individuals (2017 edition) Textbook Updates

Transcription

1 Pearson s Federal Taxation Individuals (2017 edition) Textbook Updates Several chapters Table of Updates Sorted by Chapter The IRS has issued its annual Revenue Procedure with the inflation-adjusted amounts for the personal exemption, standard deduction, etc. Here is the link to Rev. Proc , which has these inflation-adjusted amounts for 2017: Chapter I:1 An Introduction to Taxation Chapter I:2 Determination of Tax Page I:2-35 PowerPoint slide I:2-14 PowerPoint slide I:2-32 Chapter I:3 Gross Income: Inclusions Chapter I:4 Gross Income: Exclusions Page I:4-20 PowerPoint slide I:4-29 Chapter I:5 Property Transactions: Capital Gains and Losses Page I:5-19 Chapter I:6 Deductions and Losses Chapter I:7 Itemized Deductions Chapter I:8 Losses and Bad Debts Chapter I:9 Employee Expenses and Deferred Compensation Page I:9-36 1

2 Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Pages I: to I:10-17 and Appendix C Page I:10-19 Page I:10-31 Problem I:10-5 Problem I:10-24 Problem I:10-40 Problem I:10-49 Chapter I:11 Accounting Periods and Methods Test Bank, LO2, Item #20 Chapter I:12 Property Transactions: Nontaxable Exchanges Test Bank, LO3, Item #18 Chapter I:13 Property Transactions: Section 1231 and Recapture Chapter I:14 Special Tax Computation Methods, Tax Credits, and Payment of Tax Test Bank, LO5, Item #6 Chapter I:15 Tax Research Chapter I:16 Corporations Page I:16-35 Chapter I:17 Partnerships and S Corporations Chapter I:18 Taxes and Investment Planning 2

3 Table of Updates Sorted by Date of Posting on Web Site Posted 5/3/2016: Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Pages I: to I:10-17 and Appendix C Posted 7/11/2016: Chapter I:2 Determination of Tax PowerPoint slide I:2-32 Chapter I:9 Employee Expenses and Deferred Compensation Page I:9-36 Posted 10/12/2016: Chapter I:2 Determination of Tax PowerPoint slide I:2-14 Chapter I:4 Gross Income: Exclusions PowerPoint slide I:4-29 Posted 11/2/2016: Several chapters: Rev. Proc Posted 12/2/2016: Chapter I:4 Gross Income: Exclusions Page I:4-20 Chapter I:11 Accounting Periods and Methods Test Bank, LO2, Item #20 Chapter I:12 Property Transactions: Nontaxable Exchanges Test Bank, LO3, Item #18 Chapter I:14 Special Tax Computation Methods, Tax Credits, and Payment of Tax Test Bank, LO5, Item #6 Posted 1/26/2017: Chapter I:5 Property Transactions: Capital Gains and Losses Page I:5-19 (cont.) 3

4 Posted 1/26/2017 (cont.): Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Page I:10-19 Page I:10-31 Problem I:10-5 Problem I:10-24 Problem I:10-40 Problem I:10-49 Posted 2/24/2017: Chapter I:2 Determination of Tax Page I:2-35 Chapter I:16 Corporations Page I:

5 Textbook Updates Several chapters: The IRS has issued its annual Revenue Procedure with the inflation-adjusted amounts for the personal exemption, standard deduction, etc. Here is the link to Rev. Proc , which has these inflation-adjusted amounts for 2017: Chapter I:1 An Introduction to Taxation Chapter I:2 Determination of Tax Page I:2-35 (2/24/2017) The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the due date for calendar-year C corporations from March 15 to April 15. It also changed Sec. 6081(b) to allow an automatic five-month extension for such corporations through The IRS recently announced that, under Sec. 6081(a), it will allow an automatic six-month extension for calendar-year C corporations. The last sentence on page I:2-35 thus should read as follows: C corporations also file Form 7004 to obtain an extension, but it is six or seven months, depending on the fiscal year-end. Here is a link to the IRS announcement regarding this change: PowerPoint slide I:2-14 (10/12/2016) The 7.5%-of-AGI threshold for the medical expense deduction applies for individuals who are age 65 or older (not over age 65). However, note that this threshold will be 10% for all individuals, regardless of age, for taxable years beginning after December 31, PowerPoint slide I:2-32 (7/11/2016) At the box containing Will taxpayer claim someone else as a dependent, the label for the arrow pointing up should be YES (not NO ), and the label for the arrow pointing right should be NO (not YES ). A revised PowerPoint slide reflecting this will be posted shortly, but you should note this correction if you already have accessed the file containing this slide. 5

6 Chapter I:3 Gross Income: Inclusions Chapter I:4 Gross Income: Exclusions Page I:4-20 (12/2/2016) In Example I:4-28, the second line should refer to an exclusion of $101,300 (not $100,800). The example later correctly uses the $101,300 amount. PowerPoint slide I:4-29 (10/12/2016) The conjunction between the two qualifications for the exclusion should be OR (not AND ). Chapter I:5 Property Transactions: Capital Gains and Losses Page I:5-19 (1/26/2017) Example I:5-55 should indicate that Raef s purchase of the Monona stock was on October 1, 2008 (not 2009). That is, the purchase date should be when the exclusion percentage was 50%. The example s $1.9 million exclusion is correct for a 50% exclusion percentage. Chapter I:6 Deductions and Losses Chapter I:7 Itemized Deductions Chapter I:8 Losses and Bad Debts Chapter I:9 Employee Expenses and Deferred Compensation Page I:9-36 (7/11/2016) In the second paragraph, the first sentence should say that, if a nonqualified stock option has a readily ascertainable FMV, the employee recognizes ordinary income on the grant date equal to the fair market value of the option over the amount paid (if any) for such property. It 6

7 should not say that the ordinary income equals the difference between the stock s FMV and the option s exercise price). Chapter I:10 Depreciation, Cost Recovery, Amortization, and Depletion Pages I:10-13 to I:10-17 and Appendix C (5/3/2016) The textbook notes (on pages 14 and 16 and at Table 6 in Appendix C) that, at the time the 2017 edition went to print, the IRS had not yet released the 2016 ceiling limits for luxury automobiles. The IRS has since released these limits. The 2015 and 2016 ceiling limits are the same for passenger automobiles, but they differ for trucks and vans. The textbook s content is affected by the IRS release in these ways: Appendix C: An updated version of Table 6 is available here. Example I:10-22: All of the amounts are correct. Additional Comment on page 14: The $15,800 amount is correct. Table I:10-3: All of the amounts are correct. Example I:10-25: All of the amounts are correct. Page 16: Replace the table in the middle of the page with the following: Annual Ceiling Limitations Year 1 (2016) $3,560 or $11,560* Year 2 (2017) 5,700 Year 3 (2018) 3,350 Year 4 (2019 and subsequent years) 2,075 *If the taxpayer does not elect out of bonus depreciation. Footnote 25: This should refer to Rev. Proc The update for the solutions manual notes changes pertaining to the end-of-chapter Problem Materials. Similarly, the textbook notes (on page 16 and at Tables 13 and 14 in Appendix C) that, at the time the 2017 edition went to print, the IRS had not yet released the 2016 lease inclusion amounts. The IRS has since released these amounts, and they differ from the 2015 amounts. The textbook s content is affected by the IRS release in these ways: Appendix C: Updated versions of Tables 13 and 14 are available here. Example I:10-26: The last three sentences should be as follows: For 2016, this reduction was $34 ($ ). Thus, Jim s auto lease deduction for 2016 was $5,726 ($5,760 $34). For 2017, the second year, Jim s auto lease deduction is $5,686 [$5,760 ($ )]. The update for the solutions manual notes changes pertaining to the end-of-chapter Problem Materials. 7

8 Solutions Manual Updates: Note to Instructors about Chapter I:10: As noted on page I:10-16 and Appendix C of the text, the IRS had not yet released the 2016 ceiling amounts for luxury automobiles and the lease inclusion amounts at the time this edition went to press. The IRS has since released these amounts. The 2015 and 2016 ceiling limits are the same for passenger automobiles, but they differ for trucks and vans. The lease inclusion amounts are also different for 2016 than they were in In the Solutions Manual, we use the amounts based on the tables originally published in the text. However, below is a summary of the end-of-chapter questions that involve these tables and changes that would result from using the updated tables. I:10-8. No changes in the numbers included in the solution. Part c of the problem refers to the lease inclusion tables, but does not incorporate numbers from the tables in the solution. I: No changes in the numbers included in the solution. I: The IRS has released updated amounts for lease inclusion for 2016 that differ from the 2015 lease inclusion amounts that appear in Tables 13 and 14 of Appendix C. The lease inclusion amounts for a passenger automobile (that is not a truck or van) with a lease term beginning in 2016 whose fair market value is over $58,000 but not over $59,000 is $77 for the first year (see updated Table 13) Thus, Sarah s lease payment deduction, using the updated amount, is computed as follows: Lease payments ($600/month x 10 months) $6,000 Minus: Lease inclusion amount from Rev. Proc ($77 x 306/366) (64) Deductible lease payments in 2016 $5,936 I: No changes in the numbers included in the solution. I: No changes in the numbers included in the solution. I: No changes in the numbers included in the solution. I: No changes in the numbers included in the solution. I: The IRS has released updated amounts for lease inclusion for 2016 that differ from the 2015 lease inclusion amounts that appear in Tables 13 and 14 of Appendix C. The lease inclusion amounts for a passenger automobile (that is not a truck or van) with a lease term beginning in 2016 whose fair market value is over $40,000 but not over $41,000 is $44 for the first year and $97 for the second year (see updated Table 13). Thus, in part b, Troy must reduce his annual lease payment deduction by $35 ($44 x 0.80) in 2016 and by $78 ($97 x 0.80) in 2017, using the updated amounts. I: The limits for passenger automobiles (that are not trucks or vans) that are placed in service in 2016 are the same as they are for such vehicles placed in service in Thus, the amounts used in the Purchase the car portion of the answer are correct for

9 The 2016 lease inclusion amounts released by the IRS differ from the 2015 lease inclusion amounts that appear in Tables 13 and 14 of Appendix C. However, the problem says to assume for simplicity that the lease inclusion amount is $230 per year, so the amounts from Tables 13 and 14 are not used in the solution. Page I:10-19 (1/26/2017) Examples I:10-29 and I:10-30 should refer to Example I:10-27 (not Example I:10-28). Page I:10-31 (1/26/2017) In Problem I:10-28, the second sentence should say that Large did not claim Sec. 179 expensing or bonus depreciation on any of the properties (not that it did not elect Sec. 179). Problem I:10-5 (1/26/2017) Part b of the solution manual s answer, should read as follows (changed language in bold): If Robert elected Sec. 179 in 2016, he would deduct all $50,000 (which is less than the $500,000 maximum amount allowed under Sec. 179 for 2016). There would be no cost remaining to depreciate under MACRS, so his total depreciation deductions would be $50,000 for 2016 and $0 for Problem I:10-24 (1/26/2017) The third-to-last line of the solution manual s answer should say 0.40 (not 0.35). The $140,000 and $350,000 amounts are correct. Problem I:10-40 (1/26/2017) In the Solution Manual s answer for part a, the unrecovered basis at the end of 2019 and subsequent years should be as follows: 2019: $22,815 ($24,690 $1,875) 2020: $20,940 ($22,815 $1,875) 2021: $19,065 ($20,940 $1,875) For 2022 and subsequent years, the unrecovered basis is reduced by $1,875 each year. Problem I:10-49 (1/26/2017) The third-to-last line of the solution manual s answer should say PV of $121 (not PV of $119), consistent with the line preceding it. The $5,968 amount is correct. Chapter I:11 Accounting Periods and Methods Test Bank, LO2, Item #20 (12/2/2016) The correct choice is B (not A). The explanation correctly notes that $1,000 of the payment is deductible for

10 Chapter I:12 Property Transactions: Nontaxable Exchanges Test Bank, LO3, Item #18 (12/2/2016) The correct choice is D (not A). The explanation correctly notes that of the gain is taxable, which means that Jenna may exclude all $40,000 of the gain. Chapter I:13 Property Transactions: Section 1231 and Recapture Chapter I:14 Special Tax Computation Methods, Tax Credits, and Payment of Tax Test Bank, LO5, Item #6 (12/2/2016) The correct choice is B (not C). The explanation correctly notes that Amelida may rely on the 110% safe harbor because her prior year AGI exceeded $150,000. Chapter I:15 Tax Research Chapter I:16 Corporations Page I:16-35 (2/24/2017) Under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, calendar-year corporations were eligible for five-month extension for filing annual tax returns. However, recently released drafts of the instructions for Form 7004 (released in January and February of 2017) indicated that calendar-year corporations were eligible for a six-month extension. The IRS has recently confirmed the six-month extension based on Sec. 6081(a). Here is a link to the IRS announcement regarding this change: Chapter I:17 Partnerships and S Corporations Chapter I:18 Taxes and Investment Planning 10