Exam 3: Tax Planning Strategies and Related Limitations

When considering cash inflows, higher present values are preferred.

If tax rates are decreasing:

A common income shifting strategy is to:

If tax rates are decreasing:

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

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

Jayzee is a single taxpayer who operates a sole proprietorship. He expects his taxable income next year to be $150,000, of which $125,000 is attributed to his sole proprietorship. Jayzee iscontemplating incorporating his sole proprietorship. Using the 2017 single individual tax brackets and the corporate tax brackets, how much current tax could this strategy save Jayzee? (Ignore any Social Security, Medicare, or Self Employment Tax issues.) How much income should be retainedin the corporation? (Use tax rate schedule; Corporate tax rate schedule)

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

Jared, a tax novice, has recently learned of several foreign tax havens (i.e., countries with low taxrates). He is considering locating his manufacturing operations in one of these countries solely based on their low tax rates. What types of taxes is Jared ignoring? Explain how these other taxes mayaffect the viability of Jared's choice to locate in a foreign tax haven.

The timing strategy becomes more attractive as tax rates decrease.

Assuming a positive interest rate, the present value of money suggests:

Which of the following does not limit the income shifting strategy?

Effective tax planning requires all of these considerations except:

If Tom invests $60,000 in a taxable corporate bond that provides a 5 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures? Assume Tom's marginal tax rate is 35 percent.

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

The goal of tax planning is tax minimization.

Rolando's employer pays year-end bonuses each year on December 31. Rolando, a cash basis taxpayer, would prefer to not pay tax on his bonus this year. So, he leaves town on December 31, 2016 and doesn't pick up his check until January 2, 2017. When should Rolando report his bonus?

The income shifting strategy requires taxpayers with varying tax rates.

Richard recently received $10,000 of compensation for some consulting work (paid in cash). Jeffrey recently received $10,000 of interest income from City of Dallas bonds. Both taxpayers report no taxable income from these transactions. Is this considered tax avoidance or tax evasion? What is the difference, if any, between the two?

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