South-Western Federal Taxation 2014: Individual Income Taxes, Professional Edition

1138 Pages·2013·31.858 MB·English

by  William Hoffman, James E. Smith

This is an electronic version of the print textbook. Due to electronic rights restrictions,
some third party content may be suppressed. Editorial review has deemed that any suppressed
content does not materially affect the overall learning experience. The publisher reserves the right
to remove content from this title at any time if subsequent rights restrictions require it. For
valuable information on pricing, previous editions, changes to current editions, and alternate
formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for
materials in your areas of interest.
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Individual
Income Taxes
201
4
E D I T I O N
gEnERAL EDitoRS
William H. Hoffman, Jr. James E. Smith
J.D., Ph.D., CPA Ph.D., CPA
ContRiButing AutHoRS
James H. Boyd David M. Maloney James E. Smith
Ph.D., CPA Ph.D., CPA Ph.D., CPA
Arizona State University University of Virginia College of William and Mary
D. Larry Crumbley William A. Raabe James C. Young
Ph.D., CPA Ph.D., CPA Ph.D., CPA
Louisiana State University University of Wisconsin-Whitewater Northern Illinois University
Steven C. Dilley Boyd C. Randall
J.D., Ph.D., CPA J.D., Ph.D.
Michigan State University Brigham Young University
William H. Hoffman, Jr. W. Eugene Seago
J.D., Ph.D., CPA J.D., Ph.D., CPA
University of Houston Virginia Polytechnic Institute
and State University
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CHE-WFT_2014-12-0902-V1-Preface.indd 1 08/03/13 6:24 PM
South-WesternFederalTaxation: ©2014,2013South-Western,CengageLearning
IndividualIncomeTaxes,2014Edition
ALLRIGHTSRESERVED.Nopartofthisworkcoveredbythecopyrightherein
WilliamH.Hoffman,Jr.,JamesE.Smith maybereproduced,transmitted,stored,orusedinanyformorbyanymeans
graphic,electronic,ormechanical,includingbutnotlimitedtophotocopying,
SeniorVicePresident,LRS/Acquisitions&
recording,scanning,digitizing,taping,webdistribution,informationnetworks,
SolutionsPlanning:JackW.Calhoun
orinformationstorageandretrievalsystems,exceptaspermittedunder
EditorialDirector,Business&Economics: Section107or108ofthe1976UnitedStatesCopyrightAct,withouttheprior
ErinJoyner writtenpermissionofthepublisher.
Editor-in-Chief:RobDewey
ExecutiveEditor:SharonOblinger Forproductinformationandtechnologyassistance,contactusat
CengageLearningCustomer&SalesSupport,1-800-354-9706
SeniorDevelopmentalEditor:CraigAvery
Forpermissiontousematerialfromthistextorproduct,
EditorialAssistant:TristannJones
submitallrequestsonlineatwww.cengage.com/permissions
SeniorBrandManager:KristenHurd Furtherpermissionsquestionscanbeemailedto
[email protected]
SeniorMarketDevelopmentManager:Natalie
KingLivingston
MarketingCoordinator:EileenCorcoran ExamView®isaregisteredtrademarkofeInstructionCorp.Windowsisa
registeredtrademarkoftheMicrosoftCorporationusedhereinunderlicense.
SeniorContentProjectManager:Colleen
MacintoshandPowerMacintoshareregisteredtrademarksofApple
A.Farmer
Computer,Inc.usedhereinunderlicense.
MediaEditor:ChrisValentine ©2008CengageLearning.AllRightsReserved.
ManufacturingPlanner:DougWilke
CengageLearningWebTutor™isatrademarkofCengageLearning.
ProductionService:CenveoPublisherServices
SeniorArtDirector:MichelleKunkler
Alltables,figures,andexhibitsarecopyrightCengageLearning,unless
InternalandCoverDesigner:KimTorbeck/ otherwisecredited.TaxformsanddocumentsarecourtesyoftheIRS.
ImbueDesign
CoverImage:©DennisFlaherty/GettyImages,Inc. StudentEditionISBN13:978-1-285-42442-2
RightsAcquisitionsSpecialist(TextandPhoto): StudentEditionISBN10:1-285-42442-5
AnneSheroff StudentEditionwithCDISBN13:978-1-285-42441-5
StudentEditionwithCDISBN10:1-285-42441-7
ISSN:0272-0329
2014AnnualEdition
South-Western
5191NatorpBoulevard
Mason,OH45040
USA
CengageLearningisaleadingproviderofcustomizedlearningsolutionswith
officelocationsaroundtheglobe,includingSingapore,theUnitedKingdom,
Australia,Mexico,Brazil,andJapan.Locateyourlocalofficeat:
www.cengage.com/global
CengageLearningproductsarerepresentedinCanadaby
NelsonEducation,Ltd.
Foryourcourseandlearningsolutions,visitwww.cengage.com
Purchaseanyofourproductsatyourlocalcollegestoreoratour
preferredonlinestorewww.cengagebrain.com
PrintedintheUnitedStatesofAmerica
1234567 1716151413
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface
Committed to Your Success
South-Western Federal Taxation (SWFT) is the most trusted and best-selling series in college
taxation. We are focused exclusively on providing the most useful, comprehensive, and up-to-
date tax texts, online study aids, tax preparation tools, and research tools to help instructors and
students succeed in their tax courses and beyond.
Studying Is Easier with the Right Tools. Individual Income Taxes, 2014 Edition provides a
dynamic learning experience inside and outside of the classroom. Built with resources and tools
that students have identified as the most important, our complete study system provides options
for the way they learn.
Teaching with SWFT leads to better outcomes. Every year, SWFT develops a comprehensive
package of teaching and learning materials, along with significant enhancements geared to meet
instructor and student needs and to add overall value to our offering.
For 2014 we focused on enhancements that perform three key functions:
1. thoroughly update the text to reflect the 3. Focus on CengagenoW™ for online
full range of legislative activity during the year. homework. CengagenoW has replaced
The SWFT Editors kept up daily with proposed Aplia and offers the same content with
tax law changes; potential effects on text, expanded assignment settings. Cengage
homework, and supplements; and the overall understands that digital learning solutions
integration of tax legislation into topical are central to the classroom. Through
coverage throughout the text. to review a sustained research, we continually
list of changes, turn to page ix. refine our online learning solutions in
2. update the pedagogy that advances CengagenoW to meet evolving student
trends in practice and provides new insights and instructor needs. CengagenoW fulfills
for both instructors and students. to see learning and course management needs
the full scope of the text’s pedagogy, by offering auto-graded homework and a
start on page v. full eBook with features and advantages
that address common challenges.
Instructors should discuss their needs
with their sales representative to discover
how CengagenoW for SWFT best fits
their course. to learn more about
CengagenoW, see page viii.
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CHE-WFT_2014-12-0902-V1-Preface.indd 3 08/03/13 6:24 PM
iv PrEFacE
leadership, Innovation, and Service in Today’s
Changing Tax law Environment
LEADERSHip
South-Western Federal Taxation leads the market in the
number of instructors and students using its resources.
and it leads the way in its authoritative and comprehensive
coverage of the latest taxation practices and legislation
presented in a student-accessible manner.
innovAtion
South-Western Federal Taxation offers students and
instructors the broadest and most innovative selection of
learning and teaching solutions available:
• CengagenoWtM is a powerful course management DEDiCAtED, ongoing SERviCE FoR inStRuCtoRS
and online homework and learning tool that provides
The South-Western Taxation community website at www.
robust control and customization for instructors, coupled
cengage.com/community/tax is a one-stop destination for
with a unique learning process for students. Together,
instructors’ complete teaching and support needs. In addi-
CengageNOW’s features combine to meet individual,
class, departmental, and school outcomes. More than tion to the Legislative Updates page shown above, instruc-
500,000 students use CengageNOW every year! tors can access a host of other instructional materials, tech-
nology demos, annual resources, support, and training.
• Checkpoint® Student Edition from Thomson Reuters
offers career-bound students use of true professional • Sign up for the South-Western taxation Annual
tax research software to build familiarity with the Resources program and indicate which textbook you
Tax Code and its various administrative and judicial use. Upon registration, we promise to send your textbook
interpretations.* and instructor resources automatically as they are
published. This convenient service will save you time!
• H&R Block At HometM facilitates tax preparation
practice using one of the industry’s most popular tax • Legislative updates are regularly available by visiting
preparation software packages. the Community Site or simply by subscribing to our RSS
feed that will link out to the newly posted updates.
Each of these innovative South-Western Federal Taxation
• tips from a Master tax teacher—SWFT editor
assets helps students learn and retain with customized
William A. Raabe helps you to share classroom tips and
homework help and feedback while introducing them
ideas with your colleagues.
to the professional tools that will make them successful
• View demonstrations of the technology products
in their future careers.
offered with the series.
• Find technical Support and training when and how
you need it.
learning Tools That Prepare Students
for Their Professional Careers
South-Western Federal Taxation’s Individual Income Taxes, 2014 Edition includes enhanced learning features designed
to take students beyond the usual textbook experience to a deeper understanding of the real application of tax
concepts and tax law. SWFT provides the most well-rounded tax learning solution on the market by:
1. Connecting concepts and providing big-picture context to make learning more meaningful.
2. Providing student-friendly tools—like enhanced problem feedback—that help students learn more efficiently
3. Offering real-world features—like Tax in the News and Ethics and Equity features—and legislative updates in real time.
4. Helping students practice crucial professional tax skills—such as using tax research and preparation tools.
5. Making it easy for instructors to assess student performance using outcomes-based homework and testing tools.
*Not available with the Professional Editions of South-Western Federal Taxation.
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CHE-WFT_2014-12-0902-V1-Preface.indd 4 08/03/13 6:24 PM
2014
E D I T I O N
PrEFacE v
Big-piCtuRE FEAtuRES ConnECt ConCEptS AnD pRoviDE ContExt
pRACtiCAL tAx SCEnARioS StARt EvERY
CHAptER . . .
Taxation comes alive at the start of each chapter.
The big Picture: Tax Solutions for the Real World
is a glimpse into the lives, families, careers, and tax
situations of typical individual filers. Each Big Picture
case asks students to apply what they will learn in the
upcoming chapter to develop the best tax solution to
THEBIGPICTURE TaxSolutionsfortheRealWorld ©IzabelaHabur/iStockphoto.com
these real-life dilemmas.
IMPACTOFITEMIZEDDEDUCTIONSONMAJORPURCHASES
JohnandSusanWilliamson,ayoungprofessionalcouple,havebeenrentinganapartmentinWinchester,
Kentucky,sincetheyweremarried.Theirincomehasgrownasthey’vebecomemoreestablishedintheir
careers,andtheynowbelievethatthetimehascometopurchasetheirownhome.Inaddition,theirdesire
tobuyahomenowmaybecomingatagoodtime,becauseJohn’smother,Martha,needstomoveinwith
themduetoherdeclininghealthandtheircurrentapartmentistoosmalltoaccommodateher.Johnand
Susan’scurrentmonthlyrentis$2,000,buttheyarewillingtospend$2,500permonthonanafter-taxbasis
ifnecessaryfortheirfirsthome.
Aftermonthsofhousehunting,theyhavefoundtheperfecthome,buttheyfearitmaybetooexpen-
sive.Iftheyacquireastandardmortgagetofinancethepurchaseofthehome,thetotalcashoutlayduring
thefirstyearofownershipwillbe$42,000($2,000principalpayments,$37,000interestpayments,and
Big piCtuRE ExAMpLES HELp StuDEntS
FoLLoW CLiEntS tHRougH tHE
CHAptER . . .
THEBIGPICTURE
EXAMPLE 1 among the many numbered examples in every
ReturntothefactsofTheBigPictureonp.10-1.JohnandSusanWilliamsonwill
ddiesdcuovcetironthsaftorwtihthetfhirestptiumrcehiansseteoafdaofhcolmaime,inthgetyhewisltlanbdearadbledetdoucitteiomni.zeAstshuemir- chapter are an average of over four examples per
ingthatthehomemortgageinterestexpenseandrealestatetaxesmeetthe
requirementsdiscussedinthischapter,theywillbedeductedfromAGIbecause chapter based on The big Picture tax situation
theirtotalwouldexceedtheamountofthestandarddeductionforamarried
couplefilingajointreturn.Further,otherqualifyingexpenditures,suchasstate
incometaxesandcharitablecontributions,likewisewillbedeductibleasitemized that opens the text. That means less confusion
deductions,providinganexplicittaxbenefittotheWilliamsons.
understanding new topics, a more consistent
application of data for students to learn, and
practical tax stories that span the whole chapter.
. . . AnD pRACtiCAL
ConCLuSionS REinFoRCE
tHoSE tAx SCEnARioS. REFOCUSONTHEBIGPICTURE
returning to the client situations ITEMIZED BesetcaateusteaxtehsearFeeddeedraulcttiabxlelabwyinpdroivviiddueasltthaaxtpaqyuearlsi,fitehdearfetseird-etanxcecoisnttoefreasthoamndepreuarl-
DEDUCTIONS chasewillbereducedbythetaxsavingsassociatedwiththeseitemizedtaxdeduc-
introduced in the chapter-opening CANREDUCETHE tinionthse(s2e8epEexracmenptleFe1d)e.rGalivteanxtbhreacWkeiltliaanmdsothnes’6prpoejreccetnedtsttaaxteabtlaexinbrcaocmkeet,t(hi.eey.,aarge-
Big Picture, end-of-chapter Refocus ACFOTSETRO-TFAMXAJOR ginrgeNgtahotneedpmeudarurccghtiiabnslaeelpotrafixnthcbiepraahlcopkmaeytemowefni3ltl4sbpee:rcent).Asaresult,theafter-taxc$o2st,0o0f0financ-
on the big Picture summaries PURCHASES Ded[(u$c3t7ib,0le00qu+a$li3fi,e0d00re)s×id(e1n−ce.3in4t)e]restandrealestatetaxes 26,400
Total $28,400
and tax planning scenarios apply After-taxmonthlycost($28,400÷12) $2,367
BecausetheWilliamsonswillbeabletoitemizetheirdeductionsiftheypurchasea
concepts and topics from the newhomeandwillbeabletodeductmostoftheirmonthlyhousepayment,the
homepurchasewillbeaffordable(seeExamples16and22).
What If? adds realistic
chapter in a reasonable and pro- options that will spur you WWhhaattifIft?heWilliamsonsusethelessexpensiveroutetofinancethepurchaseof
fessional solution. a What If? sec- to think about how tWhheiarthmoamyeatbyfirusstinapgptehaerirtorebtiereamceonstt-eafnfedcttaivxeabaplepprooarctfholeiondassusepcubreiitnygfomrothreeclooastnly?
changes in taxpayers' whenconsideringtheimpactofthetaxlaw.Withthisapproach,theinterest
tion then demonstrates how tax situations affect how they pexlepe2n2s;efuirstnhoert,ditedisunctoitbldeebdeuccatiubsleeiatsisinnvoetstqmueanlitfiiendterreessitd(esneceeCinhtaeprteesrt1(1se)e.TEhxearme--
treatments might change as a would file their returns. fuonraef,fothrdeaabftlee.r-taxcostoffinancingthehomeusingthisapproachmakesthehome
Nondeductibleprincipalandinterestpayments $37,000
result of potential changes in the Deductiblerealestatetaxes[$3,000×(1−.34)] 1,980
Total $38,980
After-taxmonthlycost($38,980÷12) $3,248
filer’s situation—making What If?
©IzabelaHabur/iStockphoto.com
a valuable consideration in tax
planning.
poWERpoint SLiDES HigHLigHt Big piCtuRE ExAMpLES
SWFT makes preparing lectures that include the concepts and topics within The Big Picture scenarios easier. We
include Big Picture and selected Big Picture Examples in the lectures in PowerPoint for each chapter. Donald
Trippeer (SUNY—Oneonta), preparer of the PowerPoint slides, integrates these Big Picture applications into
each chapter’s slides.
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CHE-WFT_2014-12-0902-V1-Preface.indd 5 08/03/13 6:24 PM
vi PrEFacE
Student-Friendly Features Help Students
learn More Efficiently
Students tell us that they benefit from knowing the intuitive learning path they should follow as they move through
chapter concepts. So we have included features to help students navigate the chapter and learn more efficiently.
Fitting it All together: Framework 1040. This
chapter-opening feature demonstrates how topics
Income(broadlyconceived)....................................................................................................$xx,xxx Use this chapter-opening within Individual Income Taxes fit together, using
fFoRrTAaMInxEdWFiOvoRirdKmu1ua04llas0 LLGFeerOossRsssM:s: ED1i0nxe4cc0dlo uu(pmsc. i1toe)ion..ns..s......f..o....r....a....d....j..u....s....t..e....d......g....r..o....s....s......i..n....c..o....m......e............................................................................................................................................................................................................................$x((xxx,,,xxxxxxxxx)) Fshraomwes wthoer kto 1p0i4cs0 ,a ws thhicehy the Income Tax Formula for Individuals as the
Thischaptercoversthe 1123 BCuaspiintaels gsa iinnc oorm (leo sosr )(.l oAsttsa).c Ah tStacchhe dSuclhee Dd uifle r eCq uoirr eCd-.E IZf no.t re.qu.ired., ch.eck. he.re .▶. . appear in the individual framework. The framework, based on the Income
boldfacedportionsofthe 14 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . tax formula, to
TaxFormulaforIndividuals
thBeesltoheFwacittgitowuhnroaessse3oin.fp1tFroooordntrimoupnc.1se30da-4r3i0ne. TLAeadsxjusas:btlTPeehdeierngscgoroornemsaasletaein.nr.c.do.o.f.md.t.e.oe.pt..a..e..ln....id..t..ee....mn....c..i..yz....e..e..dx....e..d..m..e....dp....ut..i..oc..n..t..is..o...n.....s.........o......r.........t...h......e.........s......t...a......n......d......a......r...d.........d......e......d......u......c......t...i...o......n..................................................................................................................$$xx((xxxx,,,,xxxxxxxxxxxx)) uFonrdmer 1st0a4n0d t hwehseer ceh oanp ter Tstaaxn dFionrgm oufla t, hhee lcphs astputderesn tasn odr gtaonpiizces tthoe isre uen hdoewr-
wheretheresultsare Taxontaxableincome(seeTaxTablesorTaxRateSchedules)..........................................$x,xxx topics would appear.
reported. FORM 1040 (p. 2)
4 4 Tax (see instructions). Check if any from: a Form(s) 8814 b Form 4972c 962 election they relate to the basic tax formula and then iden-
Less:Taxcredits(includingincometaxeswithheldandprepaid)............................................ (xxx)
Taxdue(orrefund)................................................................................................................$ xxx tify where these items are reported on Form 1040.
Framework 1040 helps students navigate topics by
explaining how tax concepts are organized.
CHAPTEROUTLINE
16-1GeneralSchemeofTaxation,16-3 16-5TaxTreatmentofCapitalGainsandLossesof
Handy Chapter outline. For this edition, we’ve included a 16-2111C666a---p222iabctalDESAtfesaffsetieucntttistoo,irof1yn6JEu-o3xdfpicaainaClsaiAopcnittsia,ol1nA6,s-17s6e-t6,16-3 111N666o---n555cabcorPpCQAroaluotpreacairlettinafseisale,TtGd1iava6xDei-pn2iTva1aaiydnxeedronsnL,do1NIs6nse-c2tNo0Cematetpi,nit1ga6l-G24ain,16-24
16-3SaleorExchange,16-8 16-5d TreatmentofCapitalLosses,16-26
chapter outline that allows students and instructors to find 16-3a WorthlessSecuritiesand§1244Stock,16-8 16-5e ReportingProcedures,16-28
the right topics to study or reference. 1166--33bc OSOpbpelticigoiaanltsiR,ou1nl6se-,—1106R-e9tirementofCorporate 16-6TCaoxrpTorreaattemTeanxtpoafyCerasp,i1ta6l-3G2ainsandLossesof
16-3d Patents,16-12 16-7TaxPlanning,16-32
16-3e Franchises,Trademarks,andTrade 16-7a ImportanceofCapitalAssetStatus,16-32
Names,16-13 16-7b PlanningforCapitalAssetStatus,16-33
16-3f LeaseCancellationPayments,16-14 16-7c EffectofCapitalAssetStatusin
16-411H66o--l44dabingPRSpePereeviicroeiiodawldRR,ouu1fl6leSe-sps1,e5f1co6ira-1lS6HhoorldtiSnagles,16-17 111666---777def TSMYtreoaaancxrkis-maEScniaztdliieonPsng,lsa1BnO6en-tn3ihne5egfri,tTs1,h61a-63n-53S5ales,16-34
Homework Linked to Chapter Learning objectives. Students
tell us that for maximum learning value, homework assign-
ments should refer back to specific chapter topics and sections.
Each end-of-chapter Question and Problem is labeled with the
1. LO.2,4,5Sheilainherited300sharesofstock,100sharesofMagentaand200shares
ofPurple.Shehasastockbrokersellthesharesforher,usestheproceedsforpersonal Learning Objective(s) that appear beside key topics in the text
expenses,andthinksnothingfurtheraboutthetransactions.Whatissuesdoessheface
whenshepreparesherFederalincometaxreturn? margins. Now students can easily go back to the section of the
text where the concept in the homework item is covered—sav-
ing them time, better organizing their study, and increasing
their confidence in their ability to earn a better grade.
Real-World Features Help Students Discover
the Modern Tax Environment
To understand our ever-changing tax environment, students must connect classroom learning and textbook study
with the way tax concepts play out in the real world. SWFT is designed with this goal in mind. Here are some
examples of how SWFT helps instructors open the classroom to the real world.
FinAnCiAL DiSCLoSuRE inSigHtS
Tax professionals need to understand how taxes affect the income
statement and balance sheet. Financial Disclosure Insights, appearing
FINANCIALDISCLOSUREINSIGHTS TaxandBookDepreciation
Acommonbook-taxdifferencerelatestothedepreciation cashflowcreatedbythereductionintheyear’stax throughout the text, use current data about existing taxpayers to high-
taaacmxceoplueunrratpsteotdshe;astt.haTarytepirisce,aptlholyer,tyetdaaxrfeodrcelGapirAmeAceiPdataiionnndeaFdreeldideeurrcarteliopinnocsrotaimnrgee lEialebcFitolritricie’isns.sdtaenfecrer,edrecteanxtllyia,baiblitoiuestroenlaet-qeduatroterdeopfreGceianteiroanl light book-tax reporting differences, effective tax rates, and trends in
©CengageLearning2014 pAddbAeeeylcmrpdcwieruooelhcdescttirsiciaaohtettnheivtosadehnnrreeycilostapatsttatxrhivoxiernevegiclctsaaooijwosuventrehisfrcseoyhdraietdcnhfxteiigpanodteeanunncssictanieiincaofscculneaesaslleelco1srcrewoa9tpt8uheer0nedetsbihuentuahnngssedtipneaiuernrsrcmGesplluAoeawdsAatieeetnPsdhds.. ltaddihaciiffecbffoeeitlurrirteenuinnetcekscc.eedinss,.gfotfhriFraomtarllaRmyTbdooueyutronSt1tays’wspteaemsracsean,nbddtoeupotFrfoeorctndihae’ste-itohdndire©eddfpPe.iafrrlfAiereRecnardioeda,intSittfcooaoecnkxrsphoto gFrerepadtoeerr tatihln egtia rcx of ilnnavawen. ncFtiiianol anansc.cc Fioaiuln nDatniisncciglao lk sDunroisewc lIloensdsuiggreeh twsIi nthhsei gltphh tems rhaeeksluep l tSssWt uoFdf Testn’ast tsce o ianvneterd--
age of the role of tax data on financial statements the best in the business.
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CHE-WFT_2014-12-0902-V1-Preface.indd 6 08/03/13 6:24 PM
2014
E D I T I O N
PrEFacE vii
tAx in tHE nEWS
TAXINTHENEWS LossesonHomeMortgages
Drawn from today’s business and popular
press, Tax in the News features enliven class
During2012,manybanksandother ritiesasinventory,theyareordinaryassets.However,
ditlhliusecsmutrs atsoitoe rnetsha leb lyi cfeph.ra eTpstheeenrs teimn pgal teecnurtiriafrlue lna ant ndids s aurpeeplse lyvthiannagtt ©CengageLearning2014 snicniaassptnteiicttdiaualtloiaofasnsc“ecbhotusou.nlndIdftslitenthsgh”eewfsoiefnfirniasthaeneonc-cudmciairoaeliwtliinemnissnsotsiarttostuitgntuianiotgsvineoeecnsshut.smorIiflttedoietnsohsttkesh,tehfhtsihauneetgaysnececoacifrnuaie---l wdtsnreooarcietnutsibsrnfietnegiroerrestte.chdomTeghimennearianzedesfoaodthwlrefeeno,ortirnhfteosaetxrxilctophufsuiatsnirnoaipngnnoecvs.aiaeaclslutuueanacoltclifyolttuhdhneiestpissneoegcscueurdpriiuttioireepfssowtasherieelsl
news items make tax law concepts come to life. ©AndreyProkhorov,iStockphoto
nuMERouS REAL-WoRLD ExAMpLES in
EvERY CHAptER
Floydownsanapartmentbuildingnearauniversitycampus.Hui-Fenisoneoftheten- EXAMPLE 20 an average of over 40 examples in each chapter
ants.Hui-FenisgraduatingearlyandoffersFloyd$800tocanceltheapartmentlease.
Floydacceptstheoffer.Floydhasordinaryincomeof$800.Hui-Fenhasanondeduct- use realistic situations to illustrate the complexi-
iblepaymentbecausetheapartmentwaspersonaluseproperty.n
ties of the tax law and allow students to integrate
chapter concepts with illustrations and examples.
Students Using SWFT Develop Crucial
Professional Skills
The South-Western Federal Taxation series seeks every opportunity to expose students to the challenges of
acquiring the necessary skills to be successful professionals.
EtHiCS AnD EquitY
ETHICS&EQUITY WhoOwnstheSong?
Most issues do not have just one correct answer.
Ethics & Equity features will spark critical think-
Jasonistheleadsingerinahip-hop andthebandmemberscreatedasongthathasgoneviral
isSntuuggd gaeennsdttse idtno va ientevsa wcluelarassts erto ot ohEmetihr d icoissw c&nu svEsaiqoluunei,t yes ynsscttieecnmina.rg i os ©CengageLearning2014 aAbsiragtrnnatdihnnegmgeeemcnmoednbntoetrsfarscfetoiasnr,chtcahanpesdhbebarcffanooondlrrld.met,chatsJeiuanniscrcgohesn,efaoJrsavrhisscaocbehnnasedntpdldheauasypltisneangrelfialgobchrhobmtou.oaksJfniainncstegeohsssnes., mtioshnseeumetshsobetnehgrWastfeaoJbbra.os$oAu1nt0m0fta,hu0cis0esi0sco..ppJaupsboolrintsuhhneairtsyhn.aoEstvoatoflufledartetehdesotoomthpeeurorcfbhatanhsdee
©LdF,iStockphoto
appear in the Instructor’s Guide.
6-4 T P
AX LANNING tAx pLAnning
Most chapters include a separate
6-4a Time Value of Tax Deductions section, with its own Learning
Cashbasistaxpayersoftenhavetheabilitytomakeearlypaymentsfortheirexpenses Objective, calling attention to how
attheendofthetaxyear.Thismaypermitthepaymentstobedeductedcurrently the tax law can be applied to reach
insteadofinthefollowingtaxyear.Inviewofthetimevalueofmoney,ataxdeduc-
the taxpayer’s goals. Tax planning
tion this year may be worth more than the same deduction next year. Before
employing this strategy, the taxpayer must consider what next year’s expected applications and suggestions also
income andtaxrates willbeandwhether acash-flow problem maydevelop from appear throughout each chapter.
earlypayments.Thus,thetimevalueofmoneyaswellastaxratechangesmustbe
consideredwhenanexpensecanbepaidanddeductedineitheroftwoyears.
gLoBAL tAx iSSuES
The Global Tax Issues feature gives TradingADRsonU.S.StockExchanges
insight into the ways in which taxation Manynon-U.S.companiesnowhavesubsidiariesthatwereformerlyU.S.companies.
Forinstance,ChryslerCorporationisasubsidiaryofFiat.Sharesinsuchforeign
ialsan wda f afacelrcsotoes sdi l tlhubesyt rgianlottebesre n.thaeti oinmapl accot nocfe rtanxs ©CengageLearning2014 cfcpooaurnmrepbpigoeansnetirsceaoasdmsegtpdehanooneuniregaUshll.iyStshs.cuesatenoAnicDnkosRttesrxbuwcemheaerternnagtsdsheeascd.arePlldsueiridrncehActathmlsyeeescoroiancrnapUdno.rsSDaa.etlesipotsoonocsitkfthoAaerDtxycRishRssaeuanceregdeiepttstrh.seeIa(nmAtse.DtdeRafsdo),rthtthaaext Global©ATndreayPxrokhIosrovs,iuStocekpshoto
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CHE-WFT_2014-12-0902-V1-Preface.indd 7 08/03/13 6:24 PM
viii PrEFacE
DECiSion-MAking pRoBLEMS
DecisionMaking 12. LO.5,9DianeownsaprincipalresidenceinGeorgia,atownhouseinSanFrancisco,
Students can develop their decision- andayachtinCapeCod.AllofthepropertieshavemortgagesonwhichDianepaysin-
terest.WhatarethelimitationsonDiane’smortgageinterestdeduction?Whatstrategy
making skills and judgment on problems shouldDianeconsidertomaximizehermortgageinterestdeduction?
provided at the end of every chapter.
These problems build students’ analyti-
cal and decision-making skills.
CoMMuniCAtionS
ASSignMEntS
Communications 53. LO.3, 8SeveralyearsagoBennyJackson(125HillStreet,Charleston,WV25311) These end-of-chapter exercises,
acquiredanapartmentbuildingthatcurrentlygeneratesalossof$60,000.Benny’sAGI written to support the aIcPa cur-
is$130,000beforeconsideringtheloss.Theapartmentbuildingisinanexclusivepart
ofthecity,andBennyisanactiveparticipant.WritealettertoBennyexplainingwhat riculum recommendations, help
effectthelosswillhaveonhisAGI.
develop essential analytical and
writing skills students will need
throughout their business careers.
iSSuE iDEntiFiCAtion
a large part of understanding
taxation is the ability to discern
a tax issue within an individual IssueID 27. tLoOre.n3tKitaurepntoan2d00Adnadyysopwenryaebaer.aFchorhtohuesep.aTsthtehyreheavyeeaarns,atghreeeamgeenntthwaisthbeaernensutaclcaegssefnutl
or business situation or case. The inrentingitfor200days.KarenandAndyusethebeachhouseforoneweekduringthe
summerandoneweekduringThanksgiving.Theirdaughter,Sarah,acollegestudent,
end-of-chapter problem mate- hasaskedifsheandsomefriendscanusethebeachhousefortheweekofspringbreak.
AdviseKarenandAndyhowtheyshouldrespond,andidentifyanyrelevanttaxissues.
rial includes Issue ID questions
designed to help students identify
important tax issues.
Assessing Student Performance Made Easy
CEngAgEnoW
cengageNOW is a powerful course management and online learning tool that provides
control and customization to optimize the student learning experience and produce desired
outcomes. It includes:
• End-of-chapter homework from the
text that is expanded and enhanced to
follow the workflow a professional would
follow to solve various client scenarios.
These enhancements better engage
students and encourage thinking like a
tax professional.
• “What if” versions of problems in
CengageNOW provide students with
additional opportunities to practice key
taxation concepts and scenarios. These
alternate versions allow students to work
the same problems multiple times with
changing tax attributes. This encourages
deeper understanding of the material
because students are challenged to use
their prior knowledge of the tax situation
and critically think through the new
attributes to determine how the outcome
will change.
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CHE-WFT_2014-12-0902-V1-Preface.indd 8 12/03/13 3:29 PM