Present the big picture with a practice-based approach to understanding tax laws so students can develop critical thinking and problem-solving skills that prepare them for the real world. Fundamentals of Taxation for Individuals and Business Entities, 2025 Edition introduces a logical foundation for the income tax system so students can understand why a law exists and how to apply the law to practical tax problems. Professional skill-building exercises develop critical thinking and communication skills and the ability to identify and address ethical dilemmas, preparing students to be effective tax professionals.
Table of Contents
Part I Introduction to Income Taxation
1 The Professional Practice of Taxation 1-1
1.1 The Basics of Tax Planning 1-4
1.2 Individual Income Tax Formula 1-7
1.3 Tax Compliance vs. Tax Planning 1-15
1.4 Tax Avoidance vs. Tax Evasion 1-28
1.5 Tax Rules vs. GAAP 1-32
1.6 Goals of Tax Policymakers 1-33
1.7 Other Taxes Paid by Individuals 1-38
1.8 Professional Taxation as a Career 1-41
2 Fundamentals of the Federal Income Tax System 2-1
2.1 Taxpayer Activities: Trade or Business, Investment, or Personal Use 2-4
2.2 Classification of Assets 2-10
2.3 Basis 2-14
2.4 Foundations of Income 2-17
2.5 Foundations of Deductions 2-21
2.6 Introduction to Property Transactions 2-24
3 Tax Authority, Research, Compliance Rules, and Professional Responsibilities 3-1
3.1 Sources of Tax Authority 3-5
3.2 Locating and Evaluating Authority 3-17
3.3 Compliance Responsibilities 3-20
3.4 Tax Professional Responsibilities 3-31
3.5 Tax Practice and Procedure 3-36
4 Dependents and Filing Status 4-1
4.1 Dependents - Introduction and Qualifying Child 4-3
4.2 Qualifying Relative and Other Dependency Rules 4-11
4.3 Filing Status - Introduction 4-16
4.4 Head of Household and Qualifying Widow(er) 4-21
4.5 Dependent on Another Return and Kiddie Tax 4-28
4.6 Filing Requirements 4-32
Part II Income
5 Framework for Income Recognition 5-1
5.1 All-Inclusive Approach to Income 5-4
5.2 Judicial Doctrines 5-8
5.3 Accounting Methods and Periods - Income 5-14
5.4 Business Income for Individuals 5-24
5.5 Qualified Business Income Deduction 5-30
6 Income from Personal Activities 6-1
6.1 Income from Prizes, Awards, and Scholarships 6-6
6.2 Divorces 6-10
6.3 Income and Basis Issues for Gifts and Inheritances 6-14
6.4 Income from Injuries and Other Damage Awards 6-26
6.5 Income from Death of a Taxpayer 6-31
6.6 Forgiveness of Debt 6-35
6.7 Other Inclusions and Exclusions 6-40
7 Income from Services 7-1
7.1 Wages and Tip Income 7-6
7.2 Income from Insurance-Related Fringe Benefits 7-9
7.3 Income from Other Fringe Benefits 7-18
7.4 Stock Options 7-27
7.5 Reimbursement of Employee Business Expenses 7-34
7.6 Retirement Plans 7-36
7.7 Distribution Rules 7-47
7.8 Social Security Benefits 7-54
7.9 Foreign Earned Income 7-57
Part II (Ch. 5-7): Comprehensive Tax Return Problem
Part III Deductions
8 Framework for Deductions 8-1
8.1 Types of Activities 8-4
8.2 Disallowance of Deductions 8-8
8.3 Types of Deductions 8-13
8.4 Accounting Methods for Deductions 8-15
8.5 Capital Expenditure vs. Repair 8-22
8.6 Accounting for Inventories 8-24
9 Deductions for AGI and Itemized Deductions 9-1
9.1 Deductions for AGI 9-5
9.2 Deductions from AGI: Itemized Deductions vs. Standard Deduction 9-14
9.3 Medical Expenses 9-16
9.4 Taxes 9-20
9.5 Interest 9-25
9.6 Charitable Contributions 9-30
9.7 Casualty Losses 9-42
9.8 Other Itemized Deductions 9-45
10 Business Expenses 10-1
10.1 Business Expense Requirements 10-4
10.2 Transportation and Travel Expenses 10-8
10.3 Entertainment and Education Expenses 10-14
10.4 Business Interest 10-18
10.5 Bad Debts 10-21
10.6 Net Operating Losses 10-23
10.7 Excess Business Losses 10-29
11 Limitations on Business Losses and Expenses 11-1
11.1 Business Use of a Home 11-4
11.2 Hobby Losses 11-11
11.3 Vacation Homes 11-14
11.4 Basis and At-Risk Limitations 11-23
11.5 Passive Loss Rules 11-25
11.6 Losses from Partnerships and S Corporations 11-34
Part III (Ch. 8-11): Comprehensive Tax Return Problem
Part IV Taxation of Property Transactions
12 Taxation of Investment Income 12-1
12.1 Interest Income 12-4
12.2 Dividend Income 12-14
12.3 Capital Gains and Losses 12-22
12.4 The 3.8% Net Investment Income Tax 12-36
13 Cost Recovery of Property 13-1
13.1 General MACRS Rules 13-5
13.2 Additional Cost Recovery Rules 13-15
13.3 Amortization 13-26
13.4 Depletion 13-29
14 Taxation of Assets Used in a Trade or Business 14-1
14.1 Distinguishing Section 1231 Assets from Ordinary and Capital Assets 14-4
14.2 Identifying Types of Section 1231 Assets 14-7
14.3 Netting Section 1231 Gains and Losses 14-10
14.4 Section 1245 Depreciation Recapture 14-15
14.5 Section 1250 Depreciation Recapture 14-20
15 Property Transactions: Nonrecognition of Gains and Losses 15-1
15.1 Related-Party Losses 15-4
15.2 Wash Sales 15-9
15.3 Like-Kind Exchanges 15-15
15.4 Involuntary Conversions 15-26
15.5 Loss on Sale of Personal Use Assets 15-32
15.6 Sale of Principal Residence 15-33
Part IV (Ch. 12-15): Comprehensive Tax Return Problem
Part V Other Individual Topics
16 Personal Tax Credits 16-1
16.1 Introduction to Personal Tax Credits 16-4
16.2 Child Tax Credit 16-7
16.3 Credit for Other Dependents (Family Tax Credit) 16-10
16.4 Child and Dependent Care Credit 16-11
16.5 Earned Income Tax Credit (EITC) 16-18
16.6 Education Credits 16-25
16.7 Other Personal Tax Credits 16-32
17 Alternative Minimum Tax and Other Taxes 17-1
17.1 Alternative Minimum Tax (AMT) 17-4
17.2 Social Security, Medicare, and Self-Employment Taxes 17-17
17.3 Other Taxes 17-24
Parts II-V (Ch. 4-17): Comprehensive Tax Return Problem
Part VI CPA Evolution: Core - Tax
18 Business Entity Topics: CPA Exam Core - Taxation and Regulation 18-1
18.1 Corporations: Taxable Income Computation and Special Deductions 18-5
18.2 Other Corporate Tax Issues 18-19
18.3 Business Tax Credits 18-29
18.4 S Corporations 18-40
18.5 Partnerships and Limited Liability Companies 18-61
Part VI (Ch. 18): Comprehensive Tax Return Problem
Appendix A Tax Formula Items A-1
Appendix B Tax Forms B-1
Glossary G-1
Index I-1
