ACCT553
Week 1 Homework
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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 states that congress has the power to indirectly or directly tax income from any source derived. The purpose of the sixteenth amendment is to allow the government to create income taxes. The 16th amendment was adopted in 1903, when three-fourths of the states ratified the agreements. If these taxes are not paid, the government has the night to take income or land as payment.

Chapter 2 (5 pts) 2. Explain the two "safe harbors" available to an Individual taxpayer to avoid a penalty for underpayment of estimated tax.

The first safe harbor rule states that as long as the taxpayers quarterly payments equals 90% of what is due on the tax return they can escape a penalty. The second safe harbor allows the taxpayer to avoid a penalty as long as they pay 100% of the amount from the previous year’s tax return. If the taxpayer’s AGI exceeds $150,000, they must pay 110% of the previous year’s return.

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?

Above-the-line, or For AGI deductions, are taken out before your AGI is calculated. Above- the-line deductions include alimony, student loan interest, and moving expenses. Below-the-line deductions include medical expenses and interest expenses, and are taken out after the finalization of your AGI. For AGI deductions are more valuable to the taxpayer because it reduces the AGI.
Chapter 13 (5 pts)
4. What is an Installment Sale? Is it a form of income "deferral"? When can't you elect this form of reporting?
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