1. How do you determine the tax character of a recognized gain or loss? Would you rather have a realized gain or loss or a recognized gain or loss? 2.Explain how a company chooses a taxable year. What do you think the taxable year for the following businesses would be: i. Major league baseball team ii. A chimney cleaning business iii. A software consulting business 3. Harry and Sally have been house hunting. The real estate agent is trying to convince them that they should buy as much house as they can possibly afford. They are in a 33% tax bracket, so he has assured them that spending $28,000 a year on mortgage payments will reduce their taxes by $9,240. They may be even more reduced in the future, as they continue to rack up the big raises over the next few years. The couple has always used the standard deduction and isn't really sure how the itemizing thing really works. Sally vaguely remembers her tax professor in college warning the class that some real estate agents tend to oversell the tax benefits of home ownership. What factors would cause the actual tax savings of a $28,000 mortgage payment to be less than the payment times the couple's highest MTR? 4. Mr. and Mrs. Brown have never made a taxable gift. They have four children and ten grandchildren. Mr. and Mrs. Brown both have wills that leave their entire property to the other when one dies. They figure that there will be no estate taxes when the first spouse dies. Whats wrong with this strategy if they want their kids to enjoy their wealth after they are gone? What other things can you suggest to them to minimize their gift taxes? 5. Some people have more taxes withheld from their paychecks than is needed in order to get a refund every spring. Why would they do this? Do you agree with this strategy for a taxpayer? 6. What is the relationship between tax base and tax rate in determining the revenue collected by the government? Give an example of how a particular tax would fit into the various components of the equation