Question 1

If tax rates are decreasing:

Accepted Answer

A) taxpayers should accelerate income. 
B) taxpayers should defer deductions. 
C) taxpayers should accelerate deductions. 
D) taxpayers should defer deductions and accelerate income. 
E) None of the choices are correct. 
A) taxpayers should accelerate income. 
B) taxpayers should defer deductions. 
C) taxpayers should accelerate deductions. 
D) taxpayers should defer deductions and accelerate income. 
E) None of the choices are correct.

Question 2

The constructive receipt doctrine is more of an issue for cash basis taxpayers.

Accepted Answer

A) True 
 B)False

Question 3

Assume that Lucas' marginal tax rate is 30% and his tax rate on dividends is 15%.If a dividend-paying stock (with no growth potential)pays an 8% 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?

Accepted Answer

A) 30.00%. 
B) 15.00%. 
C) 8.00%. 
D) 6.80%. 
E) None of the choices are correct. 
A) 30.00%. 
B) 15.00%. 
C) 8.00%. 
D) 6.80%. 
E) None of the choices are correct.

Question 4

In general,tax planners prefer to accelerate deductions.

Accepted Answer

A) True 
 B)False

Question 5

Assume that Jose is indifferent between investing in a corporate bond that pays 10% interest and a stock with no growth potential that pays an 8% dividend yield.Assume that the tax rate on dividends is 15%.What is Jose's marginal tax rate?

Accepted Answer

A) 47%. 
B) 37%. 
C) 32%. 
D) 15%. 
E) None of the choices are correct. 
A) 47%. 
B) 37%. 
C) 32%. 
D) 15%. 
E) None of the choices are correct.

Question 6

When considering cash outflows,higher present values are preferred.

Accepted Answer

A) True 
 B)False

Question 7

If tax rates are decreasing:

Accepted Answer

A) taxpayers should accelerate income. 
B) taxpayers should defer deductions. 
C) taxpayers should defer income. 
D) taxpayers should defer deductions and accelerate income. 
E) None of the choices are correct. 
A) taxpayers should accelerate income. 
B) taxpayers should defer deductions. 
C) taxpayers should defer income. 
D) taxpayers should defer deductions and accelerate income. 
E) None of the choices are correct.

Question 8

Assume that Larry's marginal tax rate is 25%.If corporate bonds pay 10% interest,what interest rate would a municipal bond have to offer for Larry to be indifferent between the two bonds?

Accepted Answer

A) 25.00%. 
B) 12.50%. 
C) 10.00%. 
D) 7.50%. 
E) None of the choices are correct. 
A) 25.00%. 
B) 12.50%. 
C) 10.00%. 
D) 7.50%. 
E) None of the choices are correct.

Question 9

Which of the following is an example of the income shifting strategy?

Accepted Answer

A) A corporation paying its shareholders a $20,000 dividend. 
B) A corporation paying its owner a $20,000 salary. 
C) A high tax rate taxpayer investing in tax exempt municipal bonds. 
D) A cash-basis business delaying billing its customers until after year end. 
E) None of the choices are correct. 
A) A corporation paying its shareholders a $20,000 dividend. 
B) A corporation paying its owner a $20,000 salary. 
C) A high tax rate taxpayer investing in tax exempt municipal bonds. 
D) A cash-basis business delaying billing its customers until after year end. 
E) None of the choices are correct.

Question 10

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?

Accepted Answer

A) Constructive receipt doctrine. 
B) Implicit tax doctrine. 
C) Assignment of income doctrine. 
D) Step-transaction doctrine. 
E) None of the choices are correct. 
A) Constructive receipt doctrine. 
B) Implicit tax doctrine. 
C) Assignment of income doctrine. 
D) Step-transaction doctrine. 
E) None of the choices are correct.

Question 11

If Julius has a 20% tax rate and a 10% after-tax rate of return,$25,000 of income in three years will cost him how much tax in today's dollars? Use Exhibit 3.1.(Round present and future value amounts to 3 places)

Accepted Answer

A) $3,755. 
B) $18,775. 
C) $5,000. 
D) $25,000. 
E) None of the choices are correct. 
A) $3,755. 
B) $18,775. 
C) $5,000. 
D) $25,000. 
E) None of the choices are correct.

Question 12

Jason's employer pays year-end bonuses each year on December 31.Jason,a cash basis taxpayer,would prefer to not 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 31,2017 and has his daughter,Julie,pick up his check on January 2,2018.Who reports the income and when?

Accepted Answer

A) Julie in 2017. 
B) Julie in 2018. 
C) Jason in 2017. 
D) Jason in 2018. 
E) None of the choices are correct. 
A) Julie in 2017. 
B) Julie in 2018. 
C) Jason in 2017. 
D) Jason in 2018. 
E) None of the choices are correct.

Question 13

The income shifting strategy requires taxpayers with varying tax rates.

Accepted Answer

A) True 
 B)False

Question 14

A taxpayer paying his 10-year-old daughter $50,000 a year for consulting likely violates which doctrine?

Accepted Answer

A) Constructive receipt doctrine. 
B) Implicit tax doctrine. 
C) Substance-over-form doctrine. 
D) Step-transaction doctrine. 
E) None of the choices are correct. 
A) Constructive receipt doctrine. 
B) Implicit tax doctrine. 
C) Substance-over-form doctrine. 
D) Step-transaction doctrine. 
E) None of the choices are correct.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

If Julius has a 30% tax rate and a 10% after-tax rate of return,a $40,000 tax deduction in two years will save how much tax in today's dollars? Use Exhibit 3.1.(Round present and future value amounts to 3 places)

Accepted Answer

A) $40,000. 
B) $9,912. 
C) $33,040. 
D) $12,000. 
E) None of the choices are correct. 
A) $40,000. 
B) $9,912. 
C) $33,040. 
D) $12,000. 
E) None of the choices are correct.

Question 17

Which is not a basic tax planning strategy?

Accepted Answer

A) Income shifting. 
B) Timing. 
C) Conversion. 
D) Arms-length transaction. 
E) None of the choices are correct. 
A) Income shifting. 
B) Timing. 
C) Conversion. 
D) Arms-length transaction. 
E) None of the choices are correct.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Sal,a calendar year taxpayer,uses the cash-basis method of accounting for his sole proprietorship.In late December he performed $40,000 of consulting services for a client.Sal typically requires his clients to pay his bills immediately upon receipt.Assume that Sal's marginal tax rate is 30% this year and 35% next year and that he can earn an after-tax rate of return of 12% on his investments.Should Sal send his client the bill in December or January? Use Exhibit 3.1.(Round discount factor(s)to 3 decimal places.)

Accepted Answer

Send the bill in December. Option 1:Send

Question 20

The business purpose,step-transaction,and substance-over-form doctrines may limit the conversion strategy.

Accepted Answer

A) True 
 B)False

If tax rates are decreasing:

The constructive receipt doctrine is more of an issue for cash basis taxpayers.

In general,tax planners prefer to accelerate deductions.

Assume that Jose is indifferent between investing in a corporate bond that pays 10% interest and a stock with no growth potential that pays an 8% dividend yield.Assume that the tax rate on dividends is 15%.What is Jose's marginal tax rate?

When considering cash outflows,higher present values are preferred.

If tax rates are decreasing:

Assume that Larry's marginal tax rate is 25%.If corporate bonds pay 10% interest,what interest rate would a municipal bond have to offer for Larry to be indifferent between the two bonds?

Which of the following is an example of the income shifting strategy?

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?

If Julius has a 20% tax rate and a 10% after-tax rate of return,$25,000 of income in three years will cost him how much tax in today's dollars? Use Exhibit 3.1.(Round present and future value amounts to 3 places)

The income shifting strategy requires taxpayers with varying tax rates.

A taxpayer paying his 10-year-old daughter $50,000 a year for consulting likely violates which doctrine?

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

If Julius has a 30% tax rate and a 10% after-tax rate of return,a $40,000 tax deduction in two years will save how much tax in today's dollars? Use Exhibit 3.1.(Round present and future value amounts to 3 places)

Which is not a basic tax planning strategy?

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

The business purpose,step-transaction,and substance-over-form doctrines may limit the conversion strategy.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Individual Income Tax Overview dependents and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Individual From Agi Deductions

Filters

Exam 3: Tax Planning Strategies and Related Limitations

If tax rates are decreasing:

The constructive receipt doctrine is more of an issue for cash basis taxpayers.

In general,tax planners prefer to accelerate deductions.

Assume that Jose is indifferent between investing in a corporate bond that pays 10% interest and a stock with no growth potential that pays an 8% dividend yield.Assume that the tax rate on dividends is 15%.What is Jose's marginal tax rate?

When considering cash outflows,higher present values are preferred.

If tax rates are decreasing:

Assume that Larry's marginal tax rate is 25%.If corporate bonds pay 10% interest,what interest rate would a municipal bond have to offer for Larry to be indifferent between the two bonds?

Which of the following is an example of the income shifting strategy?

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?

If Julius has a 20% tax rate and a 10% after-tax rate of return,$25,000 of income in three years will cost him how much tax in today's dollars? Use Exhibit 3.1.(Round present and future value amounts to 3 places)

The income shifting strategy requires taxpayers with varying tax rates.

A taxpayer paying his 10-year-old daughter $50,000 a year for consulting likely violates which doctrine?

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

If Julius has a 30% tax rate and a 10% after-tax rate of return,a $40,000 tax deduction in two years will save how much tax in today's dollars? Use Exhibit 3.1.(Round present and future value amounts to 3 places)

Which is not a basic tax planning strategy?

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

The business purpose,step-transaction,and substance-over-form doctrines may limit the conversion strategy.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Individual Income Tax Overview dependents and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Individual From Agi Deductions

Filters