Exam 12: Tax Planning

Tax planning has been said to offer an opportunity for the most psychologically and financially rewarding work in tax practice. What is it about tax planning that would lead one to this conclusion?

Social Security Taxes are considered:

Taxpayers are rewarded more for finding ways to save taxes than for earning an equal amount in the marketplace.

Most sales and property taxes in the United States employ a:

The judicial doctrine "business purpose" can decrease the taxpayer's ability to employ effective planning techniques.

Jane owns land adjacent to her home that appreciated in value by $5,000 this year. She acquired the land five years ago for $25,000. Based on these facts alone, the amount that would be included in her taxable income for the current year is:

Under a progressive tax rate system, the applicable tax rate:

Any business-related expenses that are incurred in connection with the determination of a tax are deductible.

Often, by moving assets or income out of one government authority into another, tax reductions can be affected. This process is called:

The first requirement for effective tax planning is awareness on the part of decision makers.

When tax rates are constant, delaying income recognition or accelerating deductions can be beneficial.

Spreading income among related taxpayers is one of the goals of tax planning behavior.

The progressive nature of the tax system tends to increase the advantage of income splitting.

A corporate taxpayer, who is subject to a marginal state and federal tax rate of 30 percent, is considering two mutually exclusive alternatives. Alternative A is to hire a public accounting firm at a cost of $5,000 to undertake research on a tax avoidance plan. If the plan is successful, it will save the corporation $4,900 in federal income taxes. The probability of success for the plan is 75 percent. Alternative B is to hire a marketing firm at a cost of $4,500 to develop a new marketing strategy. If it is successful, the new marketing strategy would generate new revenues of $5,500. The probability of such success is 80 percent.​Which alternative should the corporation choose?

Taxpayers can always minimize their tax liability simply by moving income and assets out of one jurisdiction to another.

Which of the following is the most common tax that is found in contemporary industrialized societies?

Taxpayers can use the step-transaction doctrine to obtain various tax advantages.

Tax planning analyses should be based on the average tax rates that the individual will pay or save by adopting a particular course of action.

Choosing tax-free fringe benefits instead of an equivalent hike in salary is an example of tax planning by:

Under a proportional tax rate system, the tax rate is constant.