Question

Based on 2012 Tax Rules I:5:68
As a political consultant for an aspiring politician, you have been hired to evaluate the following statements that pertain to capital gains and losses. Evaluate these statements and provide an explanation of each statement. As you prepare your answer, consider the fact that the aspiring politician does not have much knowledge about taxation.
• 1. The tax on capital gains is considered a voluntary tax.
• 2. High-income taxpayers receive the most benefit from preferential treatment for capital gains.

Simply answering the questions which are part of the case is not enough; consider the questions to be clues to the important concepts and facts you need to cover. You are strongly encouraged to use the following outline so that your analysis is organized appropriately:

1.       Identify both the key issues and the underlying issues. In identifying the issues, you should be able to connect them to the business principles which apply to this situation.

2.       Discuss the facts which affect these issues. The case may have too much information. In your discussion, you should filter the information and discuss those facts which are pertinent to the issues identified above.

3.       Discuss your tentative solution to the problem and how you would implement your solution. What actions would you propose, based on the knowledge you have gained in this course? Be sure to support your recommendation by citing references in the text and in the supplementary readings. You should also draw on other references such as business periodicals and relevant journals. Remember that an ANALYSIS is more than simply a SUMMARY of the case study.

4.       Discuss follow-up and contingency plans. How will the organization know that your proposed solution is working? What should they do if it does not work?

Solution Preview

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Capital Gains and Losses
Capital gains occur when an asset is sold for more that it was purchased for while capital losses occur when an asset is sold for less than it was purchased for (IRS, 2015). Tax payers are legally obligated to report all capital gains, and pay tax on the net total of their capital gains based on their tax bracket and the length of time the capital asset was held. However, it is up to the tax payer to decide whether or when they should realize a capital gain, and in this sense the tax on capital gains is considered a voluntary tax. This is because while a tax payer has a legal obligation to report all capital gains, and thus pay tax on their capital gains, the timing of whether and when to realize a capital gain is entirely up to the tax payer....

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