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ACC 300 Course Problem




Question;Objectives & OutcomesThe objective of this computerized tax simulation is to help you learn how tax planning for deductions is affected by a taxpayer's marginal tax rates and the interaction between those tax rates (as they change over time) and the taxpayer's discount rate (in net present value calculations).To accomplish this objective, you must-read the Facts, Issues, & Authorities sections below,-use the related Excel spreadsheet to analyze the taxpayer's facts, given the tax law-record your answer to the questions in this file, and-submit your Excel file in the manner prescribed in the course syllabus (e.g., upload via Canvas).Facts Alicia is a cash basis taxpayer who uses a calendar year tax reporting period. Her primary source of income is from an accounting practice that she runs as a sole-proprietorship (reported on Form 1040, Schedule C). She has decided to make her operations "paperless" and needs to invest $100,000 in the current year in new digital technologies with 5-year class lives. She estimates that this investment will increase both the efficiency of her firm and its net profit before depreciation. As a consequence, she expects her marginal tax rates to be increasing over the life of the investment: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 25% 25% 30% 30% 35% 35% Assume that she has a 2% discount rate.Issue Should Alicia elect to expense the entire cost of her investment in these assets, in the year of acquisition?Authorities Internal Revenue Code (IRC) ?1 imposes a tax on an individual's taxable income. IRC ?63 defines taxable income to mean gross income, which generally includes all income from whatever source derived (per ?61) minus allowable deductions. Section 162 authorizes deductions for the ordinary and necessary expenditures incurred in the conduct of a trade or business. Per ?167(a), that includes a depreciation (cost recovery) deduction for property used in a trade or business (or for the production of income), and the modified accelerated cost recovery system (MACRS) can be used to calculate the amount of the deduction per ?168(b). In addition, ?179 allows a taxpayer to elect to deduct up to the acquisition cost of qualifying property in the year of the acquisition, rather than depreciating that amount under MACRS. There is a statutory limit on the amount that can be immediately expensed under ?179, that varies by year. (Section 168(k) also allows a taxpayer to deduct up to 100% of the qualified acquisition costs in the year of acquisition, but it is being ignored in this simulation because it is a temporary provision.


Paper#41116 | Written in 18-Jul-2015

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