Question 1

Tax evasion is a legal activity that forms the basis of the basic tax planning strategies.

Accepted Answer

A) True 
 B)False

Question 2

Assume that John's marginal tax rate is 40%. If a city of Austin bond pays 6% interest, what interest rate would a corporate bond have to offer for John to be indifferent between the two bonds?

Accepted Answer

A)  30%. 
B)  10%. 
C)  6%. 
D)  3.6%. 
E)  None of these. 
A)  30%. 
B)  10%. 
C)  6%. 
D)  3.6%. 
E)  None of these.

Question 3

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?

Accepted Answer

The constructive receipt doctrine limits

Question 4

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.

Accepted Answer

(a) Cindy, because she can defer $9,000

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 these. 
A)  timing. 
B)  tax avoidance. 
C)  income shifting. 
D)  conversion. 
E)  none of these.

Question 7

When considering cash outflows, higher present values are preferred.

Accepted Answer

A) True 
 B)False

Question 8

Based only on the information provided for each scenario, determine whether Eddy or Scott will benefit more from using the timing strategy and why there will be a benefit to that person.
a. Eddy has a 40% tax rate. Scott has a 30% tax rate.
b. Eddy and Scott each have a 40% tax rate. Eddy has $10,000 of income that could be deferred; Scott has $20,000 of income that could be shifted.
c. Eddy and Scott each have a 40% tax rate and $20,000 of income that could be deferred. Eddy's after-tax rate of return is 8%. Scott's after-tax rate of return is 10%.
d. Eddy and Scott each have a 40% tax rate, $20,000 of income that could be deferred, and an after-tax rate of return of 10%. Eddy can defer income up to 3 years. Scott can defer income up to 2 years.

Accepted Answer

(a) Eddy, because the benefits of the ti

Question 9

Jared, a tax novice, has recently learned of several foreign tax havens (i.e., countries with low tax rates). 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 may affect the viability of Jared's choice to locate in a foreign tax haven.

Accepted Answer

The concept of implicit taxes suggests t

Question 10

Joe Harry, a cash basis taxpayer, owes $20,000 in tax deductible accounting fees for his business. Assume that it is December 28 and that Joe Harry can avoid any finance charges if he pays the accounting fees by January 10. Joe Harry's tax rate this year is 30%. His tax rate next year will be 33%. His after-tax rate of return is 8%. When should Joe Harry pay the $20,000 fees and why?

Accepted Answer

If Joe Harry pays the $20,000 in Decembe

Question 11

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? (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 these. 
A)  $40,000. 
B)  $9,912. 
C)  $33,040. 
D)  $12,000. 
E)  None of these.

Question 12

If Thomas has a 40% tax rate and a 6% after-tax rate of return, $50,000 of income in five years will cost him how much tax in today's dollars? (round present and future value amounts to 3 places)

Accepted Answer

A)  $50,000. 
B)  $20,000. 
C)  $37,350. 
D)  $14,940. 
E)  None of these. 
A)  $50,000. 
B)  $20,000. 
C)  $37,350. 
D)  $14,940. 
E)  None of these.

Question 13

If Lucy earns a 6% after-tax rate of return, $8,000 received in four years is worth how much today? (round present and future value amounts to 3 places)

Accepted Answer

A)  $8,000. 
B)  $7,544. 
C)  $8,989. 
D)  $6,336. 
E)  None of these. 
A)  $8,000. 
B)  $7,544. 
C)  $8,989. 
D)  $6,336. 
E)  None of these.

Question 14

Assume that Bill's marginal tax rate is 30%. If corporate bonds pay 8% interest, what interest rate would a municipal bond have to offer for Bill to be indifferent between the two bonds?

Accepted Answer

A)  30%. 
B)  10.4%. 
C)  8%. 
D)  7%. 
E)  None of these. 
A)  30%. 
B)  10.4%. 
C)  8%. 
D)  7%. 
E)  None of these.

Question 15

The present value concept becomes more important as interest rates increase.

Accepted Answer

A) True 
 B)False

Question 16

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 these. 
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 these.

Question 17

Rodney, a cash basis taxpayer, owes $40,000 in tax deductible consulting fees for his business. Assume that it is December 28 and that Rodney can avoid any finance charges if he pays the accounting fees by January 10. Rodney's tax rate this year is 30% and his after-tax rate of return is 10%. At what tax rate next year, will Rodney be indifferent between paying the $40,000 this year and next year?

Accepted Answer

If Rodney pays the $40,000 in December,

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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%. 
B)  12.5%. 
C)  10%. 
D)  7.5%. 
E)  None of these. 
A)  25%. 
B)  12.5%. 
C)  10%. 
D)  7.5%. 
E)  None of these.

Question 20

The goal of tax planning generally is to:

Accepted Answer

A)  Minimize taxes. 
B)  Minimize IRS scrutiny. 
C)  Maximize after-tax wealth. 
D)  Support the Federal government. 
E)  None of these. 
A)  Minimize taxes. 
B)  Minimize IRS scrutiny. 
C)  Maximize after-tax wealth. 
D)  Support the Federal government. 
E)  None of these.

Tax evasion is a legal activity that forms the basis of the basic tax planning strategies.

Assume that John's marginal tax rate is 40%. If a city of Austin bond pays 6% interest, what interest rate would a corporate bond have to offer for John to be indifferent between the two bonds?

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?

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

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

When considering cash outflows, higher present values are preferred.

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? (round present and future value amounts to 3 places)

If Thomas has a 40% tax rate and a 6% after-tax rate of return, $50,000 of income in five years will cost him how much tax in today's dollars? (round present and future value amounts to 3 places)

If Lucy earns a 6% after-tax rate of return, $8,000 received in four years is worth how much today? (round present and future value amounts to 3 places)

Assume that Bill's marginal tax rate is 30%. If corporate bonds pay 8% interest, what interest rate would a municipal bond have to offer for Bill to be indifferent between the two bonds?

The present value concept becomes more important as interest rates increase.

The constructive receipt doctrine:

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

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?

The goal of tax planning generally is to:

An Introduction to Tax

Tax Compliance , the Irs, and Tax Authorities

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From 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

Filters

Exam 3: Tax Planning Strategies and Related Limitations

Tax evasion is a legal activity that forms the basis of the basic tax planning strategies.

Assume that John's marginal tax rate is 40%. If a city of Austin bond pays 6% interest, what interest rate would a corporate bond have to offer for John to be indifferent between the two bonds?

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?

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

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

When considering cash outflows, higher present values are preferred.

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? (round present and future value amounts to 3 places)

If Thomas has a 40% tax rate and a 6% after-tax rate of return, $50,000 of income in five years will cost him how much tax in today's dollars? (round present and future value amounts to 3 places)

If Lucy earns a 6% after-tax rate of return, $8,000 received in four years is worth how much today? (round present and future value amounts to 3 places)

Assume that Bill's marginal tax rate is 30%. If corporate bonds pay 8% interest, what interest rate would a municipal bond have to offer for Bill to be indifferent between the two bonds?

The present value concept becomes more important as interest rates increase.

The constructive receipt doctrine:

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

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?

The goal of tax planning generally is to:

An Introduction to Tax

Tax Compliance , the Irs, and Tax Authorities

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From 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

Filters