FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 3: Tax Planning Strategies and Related Limitations

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Essay

Review LaterAdd Note

Review Later

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.

Correct Answer

verified

The three basic tax strategies discussed...

View Answer

Show Answer

Question 22

True/False

Review LaterAdd Note

Review Later

Implicit taxes may reduce the benefits of the conversion strategy.

Correct Answer

verified

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

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

If Nicolai earns an 8% after-tax rate of return, $20,000 today would be worth how much to Nicolai in 5 years?

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.

Which of the following may limit the conversion strategy?

The income shifting strategy requires taxpayers with varying tax rates.

Danny argues that tax accountants suffer from one-mindedness in their attempts at tax planning (i.e., reducing taxes at all costs). Is Danny's view of tax planning correct - i.e., does he understand what the goal of tax planning is? Please elaborate.

Tax savings generated from deductions are considered cash inflows.

The constructive receipt doctrine:

A common income shifting strategy is to:

Which is not a basic tax planning strategy?

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

The timing strategy is based on the idea that where income is taxed affects the tax costs of the income.

Antonella works for a company that pays a year-end bonus in December of each year. Assume that Antonella expects to receive a $20,000 bonus in December this year, her tax rate is 30%, and her after-tax rate of return is 8%. If Antonella's employer paid her bonus on January 1 of next year instead of December, how much would this action save Antonella in today's tax dollars? If Antonella's tax rate increased to 32% next year, would receiving the bonus in January still be advantageous?

Boeing is considering opening a plant in two neighboring states. One state has a corporate tax rate of 15%. If operated in this state, the plant is expected to generate $1,200,000 pre-tax profit. The other state has a corporate tax rate of 5%. If operated in this state, the plant is expected to generate $1,085,000 of pre-tax profit. Which state should Boeing choose? Why do you think the plant in the state with a lower tax rate would produce a lower pre-tax income?

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 (rounded) ?

If Joel earns a 10% after-tax rate of return, $10,000 received in two years is worth how much today (rounded) ?

When considering cash outflows, higher present values are preferred.

The income shifting and timing strategies are examples of: