Exam 3: Tax Planning Strategies and Related Limitations

Rolando's employer pays year-end bonuses each year on December 31.Rolando, a cash-basis taxpayer, would prefer not to pay tax on his bonus this year.So, he leaves town on December 31, 2018, and doesn't pick up his check until January 2, 2019.When should Rolando report his bonus?

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

Tax savings generated from deductions are considered cash inflows.

Implicit taxes may reduce the benefits of the conversion strategy.

In general, tax planners prefer to accelerate deductions.

Assume that Larry's marginal tax rate is 24 percent.If corporate bonds pay 10 percent interest, what interest rate would a municipal bond have to offer for Larry to be indifferent between the two bonds?

Paying dividends to shareholders is one effective way of shifting income from a corporation to its shareholders.

The goal of tax planning is tax minimization.

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

Assume that Lucas's marginal tax rate is 32 percent and his tax rate on dividends is 15 percent.If a dividend-paying stock (with no growth potential)pays an 8 percent dividend yield, what interest rate would a municipal bond have to offer for Lucas to be indifferent between the two investments from a cash-flow perspective?

Compare and contrast the constructive receipt doctrine and the assignment of income doctrine. In what situations do these doctrines apply? What tax planning strategies does each doctrine limit?

A taxpayer instructing her son to collect rent checks for the taxpayer's property and to report this as taxable income on the son's tax return violates which doctrine?

Lucky owns a maid service that cleans several local businesses nightly.Lucky, a high tax rate taxpayer, would like to shift some income to his son Rocco.Lucky tells all of his customers (who are always timely in their payments)to pay Rocco, and then Rocco will report 50 percent of the income as a collection fee.Lucky will report the remaining 50 percent.Will this shift the income from Lucky to Rocco? Why or why not? What doctrines influence your answer? Any suggestions for Lucky?

If tax rates are decreasing:

Assuming an after-tax rate of return of 10 percent, John should prefer to pay an expense of $85 today instead of an expense of $100 in one year.Use Exhibit 3.1.