Question 1

Which is not a basic tax planning strategy?

Accepted Answer

A) Income shifting. 
B) Timing. 
C) Conversion. 
D) Arm's length transaction. 
E) None of the choices are correct. 
A) Income shifting. 
B) Timing. 
C) Conversion. 
D) Arm's length transaction. 
E) None of the choices are correct.

Question 2

If Jim invested $100,000 in an annual dividend-paying stock today with a 7 percent return,what investment time period will give Jim the greatest after-tax return?

Accepted Answer

A) 1 year. 
B) 5 years. 
C) 10 years. 
D) 20 years. 
E) All yield the same after-tax return. 
A) 1 year. 
B) 5 years. 
C) 10 years. 
D) 20 years. 
E) All yield the same after-tax return.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

If Thomas has a 37 percent tax rate and a 6 percent after-tax rate of return,$50,000 of income in five years will cost him how much tax in today's dollars? Use Exhibit 3.1.(Round discount factor(s)to three decimal places.)

Accepted Answer

A) $50,000. 
B) $18,500. 
C) $37,350. 
D) $13,820 
E) None of the choices are correct. 
A) $50,000. 
B) $18,500. 
C) $37,350. 
D) $13,820 
E) None of the choices are correct.

Question 5

An investment's time horizon does not affect after-tax rates of return on investments taxed annually.

Accepted Answer

A) True 
 B)False

Question 6

Jason's employer pays year-end bonuses each year on December 31.Jason,a cash-basis taxpayer,would prefer not to pay tax on his bonus this year (and actually would prefer his daughter to pay tax on the bonus).So,he leaves town on December 31,2018,and has his daughter,Julie,pick up his check on January 2,2019.Who reports the income and when?

Accepted Answer

A) Julie in 2018. 
B) Julie in 2019. 
C) Jason in 2018. 
D) Jason in 2019. 
E) None of the choices are correct. 
A) Julie in 2018. 
B) Julie in 2019. 
C) Jason in 2018. 
D) Jason in 2019. 
E) None of the choices are correct.

Question 7

Which of the following tax planning strategies is based on the present value of money?

Accepted Answer

A) timing. 
B) tax avoidance. 
C) income shifting. 
D) conversion. 
E) None of the choices are correct. 
A) timing. 
B) tax avoidance. 
C) income shifting. 
D) conversion. 
E) None of the choices are correct.

Question 8

If Rudy has a 25 percent tax rate and a 6 percent after-tax rate of return,a $30,000 tax deduction in four years will save how much tax in today's dollars? Use Exhibit 3.1.(Round discount factor(s)to three decimal places.)

Accepted Answer

A) $30,000. 
B) $7,500. 
C) $23,760. 
D) $5,940. 
E) None of the choices are correct. 
A) $30,000. 
B) $7,500. 
C) $23,760. 
D) $5,940. 
E) None of the choices are correct.

Question 9

The constructive receipt doctrine:

Accepted Answer

A) is particularly restrictive for accrual-basis taxpayers. 
B) causes income to be recognized before it is actually received. 
C) causes income to be recognized after it is actually received. 
D) applies equally to income and expenses. 
E) None of the choices are correct. 
A) is particularly restrictive for accrual-basis taxpayers. 
B) causes income to be recognized before it is actually received. 
C) causes income to be recognized after it is actually received. 
D) applies equally to income and expenses. 
E) None of the choices are correct.

Question 10

An astute tax student once summarized that many of the tax planning strategies merely make use of the variation of taxation across different dimensions.Explain why this is true.Be specific.

Accepted Answer

The three basic tax strategies discussed

Question 11

Nontax factors do not play an important role in tax planning.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) 50 percent. 
B) 40 percent. 
C) 30 percent. 
D) 20 percent. 
E) None of the choices are correct. 
A) 50 percent. 
B) 40 percent. 
C) 30 percent. 
D) 20 percent. 
E) None of the choices are correct.

Question 13

If tax rates will be higher next year,taxpayers should accelerate their deductions regardless of their after-tax rate of return.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) A cash-basis taxpayer paying all outstanding bills by year-end. 
B) A parent employing her child in the family business. 
C) A business paying its owner a $30,000 salary. 
D) A taxpayer investing in a tax-preferred investment. 
E) None of the choices are correct. 
A) A cash-basis taxpayer paying all outstanding bills by year-end. 
B) A parent employing her child in the family business. 
C) A business paying its owner a $30,000 salary. 
D) A taxpayer investing in a tax-preferred investment. 
E) None of the choices are correct.

Question 15

Assume that Javier is indifferent between investing in a city of El Paso bond that pays 5 percent interest and a corporate bond that pays 6.25 percent interest.What is Javier's marginal tax rate?

Accepted Answer

A) 50 percent. 
B) 40 percent. 
C) 30 percent. 
D) 20 percent. 
E) None of the choices are correct. 
A) 50 percent. 
B) 40 percent. 
C) 30 percent. 
D) 20 percent. 
E) None of the choices are correct.

Which is not a basic tax planning strategy?

If Jim invested $100,000 in an annual dividend-paying stock today with a 7 percent return,what investment time period will give Jim the greatest after-tax return?

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

If Thomas has a 37 percent tax rate and a 6 percent after-tax rate of return,$50,000 of income in five years will cost him how much tax in today's dollars? Use Exhibit 3.1.(Round discount factor(s)to three decimal places.)

An investment's time horizon does not affect after-tax rates of return on investments taxed annually.

Which of the following tax planning strategies is based on the present value of money?

If Rudy has a 25 percent tax rate and a 6 percent after-tax rate of return,a $30,000 tax deduction in four years will save how much tax in today's dollars? Use Exhibit 3.1.(Round discount factor(s)to three decimal places.)

The constructive receipt doctrine:

An astute tax student once summarized that many of the tax planning strategies merely make use of the variation of taxation across different dimensions.Explain why this is true.Be specific.

Nontax factors do not play an important role in tax planning.

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

If tax rates will be higher next year,taxpayers should accelerate their deductions regardless of their after-tax rate of return.

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

Assume that Javier is indifferent between investing in a city of El Paso bond that pays 5 percent interest and a corporate bond that pays 6.25 percent interest.What is Javier's marginal tax rate?

An Introduction to Tax

Tax Compliance,the Irs,and Tax Authorities

Individual Income Tax Overview,dependents,and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income,deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation,reorganization,and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 3: Tax Planning Strategies and Related Limitations

Which is not a basic tax planning strategy?

If Jim invested $100,000 in an annual dividend-paying stock today with a 7 percent return,what investment time period will give Jim the greatest after-tax return?

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

If Thomas has a 37 percent tax rate and a 6 percent after-tax rate of return,$50,000 of income in five years will cost him how much tax in today's dollars? Use Exhibit 3.1.(Round discount factor(s)to three decimal places.)

An investment's time horizon does not affect after-tax rates of return on investments taxed annually.

Which of the following tax planning strategies is based on the present value of money?

If Rudy has a 25 percent tax rate and a 6 percent after-tax rate of return,a $30,000 tax deduction in four years will save how much tax in today's dollars? Use Exhibit 3.1.(Round discount factor(s)to three decimal places.)

The constructive receipt doctrine:

An astute tax student once summarized that many of the tax planning strategies merely make use of the variation of taxation across different dimensions.Explain why this is true.Be specific.

Nontax factors do not play an important role in tax planning.

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

If tax rates will be higher next year,taxpayers should accelerate their deductions regardless of their after-tax rate of return.

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

Assume that Javier is indifferent between investing in a city of El Paso bond that pays 5 percent interest and a corporate bond that pays 6.25 percent interest.What is Javier's marginal tax rate?

An Introduction to Tax

Tax Compliance,the Irs,and Tax Authorities

Individual Income Tax Overview,dependents,and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income,deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation,reorganization,and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters