FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 3: Tax Planning Strategies and Related Limitations

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

True/False

Review LaterAdd Note

Review Later

If tax rates will be higher next year, taxpayers should defer their income to next year regardless of their after-tax rate of return.

A) True
B) False

Correct Answer

verified

Show Answer

Question 52

Multiple Choice

Review LaterAdd Note

Review Later

Effective tax planning does not require consideration of:

A) nontax factors
B) the taxpayer's tax costs of alternative transactions
C) the other party's tax costs of alternative transactions
D) the other party's nontax costs of alternative transactions
E) None of these

F) B) and E)
G) All of the above

Correct Answer

verified

Show Answer

Question 53

True/False

Review LaterAdd Note

The timing strategy is based on the idea that where income is taxed affects the tax costs of the income.

Assume that Marsha is indifferent between investing in a city of Destin bond that pays 6% interest and a corporate bond that pays 8% interest. What is Marsha's marginal tax rate?

One limitation of the timing strategy is the difficulties in accelerating a tax deduction without accelerating the actual cash outflow that generates the tax deduction.

When considering cash outflows, higher present values are preferred.

The time value of money suggests that $1 in one year is worth less than $1 today.

Which of the following is an example of the timing strategy?

The concept of present value is an important part of the timing strategy.

The constructive receipt doctrine is a natural limitation for the conversion strategy.

The timing strategy becomes more attractive if a taxpayer is able to accelerate deductions by two or more years (versus one year).

The timing strategy is particularly effective for cash basis taxpayers.

Which of the following does not limit the benefits of deferring income?

Assume that Lavonia's marginal tax rate is 20%. If a city of Tampa bond pays 5% interest, what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds?

If tax rates are decreasing:

Based only on the information provided for each scenario, determine whether Kristi or Cindy will benefit more from using the timing strategy and why there will be a benefit to that person. a. Kristi has a 40% tax rate and can defer $20,000 of income. Cindy has a 30% tax rate and can defer $30,000 of income. b. Kristy has a 30% tax rate, a 10% after-tax rate of return, and can defer $25,000 of income for three years. Cindy has a 40% tax rate, an 8% after-tax rate of return, and can defer $20,000 of income for four years.

Future value can be computed as Future Value = Present Value/(1 + r)n.

The constructive receipt doctrine:

Paying "fabricated" expenses in high tax rate years is an example of:

Which of the following decreases the benefits of accelerating deductions?