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Chapter 1 (5 pts)
1. Briefly discuss the purpose of the Sixteenth Amendment?
The purpose Sixteenth Amendment was to give the congress the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration. Now Congress has clear authority to enact a tax on income from whatever source derived on corporate and individual, and these taxes could be either direct or indirect(Smith, Harmelink & Hasselback, 2013). Also, if the taxpayers fail to repay, there are penalty for not paying the taxes.
Chapter 2 (5 pts)
2. Explain the two "safe harbors" available to an Individual taxpayer to avoid a penalty for underpayment of estimated tax?
Federal tax law does provide ways to avoid the underpayment penalty, if the taxpayers fail to pay the taxes. There are two “safe harbors” available to individuals:
1. 90 percent of the tax shown on the return or 100 percent (110 percent if adjusted gross income for 2002 and later exceeds $150,000) of the tax shown on the return for the preceding taxable year (assuming it showed a tax liability and covered a taxable year of 12 months). Code Sec. 6654(d)(1)(A) and (B). (Smith, Harmelink & Hasselback, 2013)
2. An amount equal to 90 percent of the tax for the taxable year computed by annualizing the taxable income received for the months in the taxable year ending before the month in which the installment is required to be paid. Code Sec. 6654(d)(2). (Smith, Harmelink & Hasselback, 2013)
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?
They are both types of deductions may reduce a taxpayer’s taxable income, the above the line deductions are the deductions that taken out before the adjusted gross income while below the line deduction are deductions that taken out after the adjusted gross income. I believe above the line deductions are more valuable than below the line deductions because below the line deductions are more uncertain and subject to…