Question 1

Mrs.Stout has a $35,000 capital gain eligible for a 28% preferential tax rate.Which of the following statements is false?

Accepted Answer

A) If Mrs.Stout's regular marginal tax rate is 15%,she can elect to recharacterize the capital gain as ordinary income. 
B) If Mrs.Stout's regular marginal tax rate is 25%,the preferential tax rate has no value to her. 
C) If Mrs.Stout's regular marginal tax rate is 35%,the preferential tax rate saves her $2,450 in tax. 
D) None of the above is false. 
A) If Mrs.Stout's regular marginal tax rate is 15%,she can elect to recharacterize the capital gain as ordinary income. 
B) If Mrs.Stout's regular marginal tax rate is 25%,the preferential tax rate has no value to her. 
C) If Mrs.Stout's regular marginal tax rate is 35%,the preferential tax rate saves her $2,450 in tax. 
D) None of the above is false. A

Question 2

The tax law provides that individuals do not pay tax on the first $250,000 of gain realized on the sale of a principal residence.This rule is an example of the:

Accepted Answer

A) Entity variable 
B) Time period variable 
C) Jurisdiction variable 
D) Character variable 
A) Entity variable 
B) Time period variable 
C) Jurisdiction variable 
D) Character variable D

Question 3

Hilex Inc.structures a transaction to shift income from its 20Y0 tax year to its 20Y2 tax year.This tax planning strategy may be taking advantage of the:

Accepted Answer

A) Character variable 
B) Entity variable 
C) Time period variable 
D) Jurisdiction variable 
A) Character variable 
B) Entity variable 
C) Time period variable 
D) Jurisdiction variable C

Question 4

The goal of tax planning is to reduce tax costs or increase tax savings as much as possible.

Accepted Answer

A) True 
 B)False

Question 5

Hilex Inc.liquidates its investment in General Electric corporate bonds and reinvests the proceeds in City of Miami municipal bonds.This tax planning strategy may be taking advantage of the:

Accepted Answer

A) Character variable 
B) Entity variable 
C) Time period variable 
D) Jurisdiction variable 
A) Character variable 
B) Entity variable 
C) Time period variable 
D) Jurisdiction variable

Question 6

A strategy to shift income from one taxpayer to a different taxpayer reflects the entity variable,while a strategy to shift income from one year to a different year reflects the time period variable.

Accepted Answer

A) True 
 B)False

Question 7

Mr.Hayes plans to pay $100,000 for one of three investment alternatives that have the same risk.The income from investment 1 would be taxed at Mr.Hayes' 25% regular tax rate,the income from investment 2 would be taxed at a 15% preferential rate,and the income from investment 3 is tax-exempt.The investments offer the following before-tax yields. Investment 1: 9.0%
Investment 2: 7.5%
Investment 3: 6.0%
Which investment should Mr.Hayes select?

Accepted Answer

A) Investment 1 
B) Investment 2 
C) Investment 3 
D) Mr.Hayes is neutral between investment 2 and investment 3. 
A) Investment 1 
B) Investment 2 
C) Investment 3 
D) Mr.Hayes is neutral between investment 2 and investment 3.

Question 8

The after-tax value of a dollar of income to a high-tax entity is more than the after-tax value to a low-tax entity.

Accepted Answer

A) True 
 B)False

Question 9

The assignment of income doctrine holds that:

Accepted Answer

A) Income from a transaction must be taxed to the person who receives the cash from the transaction. 
B) Income from a transaction must be taxed to the person who reports the transaction on his or her tax return. 
C) Income from a transaction must be taxed to the person that earns the income. 
D) None of the above 
A) Income from a transaction must be taxed to the person who receives the cash from the transaction. 
B) Income from a transaction must be taxed to the person who reports the transaction on his or her tax return. 
C) Income from a transaction must be taxed to the person that earns the income. 
D) None of the above

Question 10

Which of the following statements about ordinary income and capital gain is false?

Accepted Answer

A) Every item of income is ultimately characterized as either ordinary income or capital gain for federal tax purposes. 
B) Most ordinary income items are taxed at the regular individual or corporate tax rates. 
C) Individuals and corporations pay tax on their capital gains at a preferential rate. 
D) None of the above is false. 
A) Every item of income is ultimately characterized as either ordinary income or capital gain for federal tax purposes. 
B) Most ordinary income items are taxed at the regular individual or corporate tax rates. 
C) Individuals and corporations pay tax on their capital gains at a preferential rate. 
D) None of the above is false.

Question 11

The 15% preferential tax rate on capital gains has the same value to every individual taxpayer.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements about implicit and explicit taxes is false?

Accepted Answer

A) The amount of implicit tax on an investment depends on the owner's marginal tax rate. 
B) The taxpayer pays an explicit tax to the taxing jurisdiction. 
C) An investment yielding ordinary income taxed at the regular tax rates should not have an implicit tax. 
D) None of the above is false. 
A) The amount of implicit tax on an investment depends on the owner's marginal tax rate. 
B) The taxpayer pays an explicit tax to the taxing jurisdiction. 
C) An investment yielding ordinary income taxed at the regular tax rates should not have an implicit tax. 
D) None of the above is false.

Question 13

Elton Company plans to build a new facility to manufacture backpacks.Elton sells its backpacks across the country for $300 per pack.It could locate the plan in state A,which levies a 5 percent tax on business income.The estimated manufacturing cost per pack in state A would be $120.Alternatively,Elton could locate the plan in state B,which levies a 3 percent tax on business income.The estimated manufacturing cost in state B is $126 per pack.In which state should Elton locate its plant? Provide calculations to support your conclusion.

Accepted Answer

Before-tax profit per pack in state A is

Question 14

Planning opportunities are created when the tax law applies differentially to alternative business transactions.

Accepted Answer

A) True 
 B)False

Question 15

Mrs.Bern's marginal tax rate is 33%,and her grandson Jeff's marginal tax rate is 10%.Which of the following statement is false?

Accepted Answer

A) The family could save 23 cents of tax for every dollar of deduction shifted from Jeff to Mrs.Bern. 
B) The family could save 23 cents of tax for every dollar of income shifted from Mrs.Bern to Jeff. 
C) Any income shift from Mrs.Bern to Jeff is constrained by the assignment of income doctrine. 
D) None of the above is false. 
A) The family could save 23 cents of tax for every dollar of deduction shifted from Jeff to Mrs.Bern. 
B) The family could save 23 cents of tax for every dollar of income shifted from Mrs.Bern to Jeff. 
C) Any income shift from Mrs.Bern to Jeff is constrained by the assignment of income doctrine. 
D) None of the above is false.

Question 16

Which of the following statements about the jurisdiction variable is true?

Accepted Answer

A) Most businesses are subject to the taxing jurisdiction of more than one government. 
B) For federal purposes,state income taxes are deductible in the computation of taxable income. 
C) Businesses can often minimize total tax burden by conducting business in jurisdictions with favorable tax climates. 
D) All of the above statements are true. 
A) Most businesses are subject to the taxing jurisdiction of more than one government. 
B) For federal purposes,state income taxes are deductible in the computation of taxable income. 
C) Businesses can often minimize total tax burden by conducting business in jurisdictions with favorable tax climates. 
D) All of the above statements are true.

Question 17

The time period variable reflects the fact that:

Accepted Answer

A) Federal income tax rules are not stable over time. 
B) A tax dollar paid this year cost more than a tax dollar paid in a future year. 
C) A taxpayer's marginal rate next year may be more or less than the current marginal rate. 
D) None of the above 
A) Federal income tax rules are not stable over time. 
B) A tax dollar paid this year cost more than a tax dollar paid in a future year. 
C) A taxpayer's marginal rate next year may be more or less than the current marginal rate. 
D) None of the above

Question 18

Income-shifting transactions occur more frequently between related parties than between unrelated parties.

Accepted Answer

A) True 
 B)False

Question 19

Pratt Company structured an income-generating transaction so that the $750,000 income and cash flow shifted to Pratt's wholly owned subsidiary,PTB Company.If Pratt's marginal tax rate is 40%,and PTB's tax rate is 15%,compute the tax savings from the income shift.

Accepted Answer

A) $300,000 
B) $250,000 
C) $187,500 
D) $112,500 
A) $300,000 
B) $250,000 
C) $187,500 
D) $112,500

Question 20

Mrs.Day structures a transaction to shift income from her 20Y1 tax year to her 20Y2 tax year.This tax planning strategy may be taking advantage of the:

Accepted Answer

A) Entity variable 
B) Time period variable 
C) Jurisdiction variable 
D) Character variable 
A) Entity variable 
B) Time period variable 
C) Jurisdiction variable 
D) Character variable

Mrs.Stout has a $35,000 capital gain eligible for a 28% preferential tax rate.Which of the following statements is false?

The tax law provides that individuals do not pay tax on the first $250,000 of gain realized on the sale of a principal residence.This rule is an example of the:

Hilex Inc.structures a transaction to shift income from its 20Y0 tax year to its 20Y2 tax year.This tax planning strategy may be taking advantage of the:

The goal of tax planning is to reduce tax costs or increase tax savings as much as possible.

Hilex Inc.liquidates its investment in General Electric corporate bonds and reinvests the proceeds in City of Miami municipal bonds.This tax planning strategy may be taking advantage of the:

A strategy to shift income from one taxpayer to a different taxpayer reflects the entity variable,while a strategy to shift income from one year to a different year reflects the time period variable.

The after-tax value of a dollar of income to a high-tax entity is more than the after-tax value to a low-tax entity.

The assignment of income doctrine holds that:

Which of the following statements about ordinary income and capital gain is false?

The 15% preferential tax rate on capital gains has the same value to every individual taxpayer.

Which of the following statements about implicit and explicit taxes is false?

Planning opportunities are created when the tax law applies differentially to alternative business transactions.

Mrs.Bern's marginal tax rate is 33%,and her grandson Jeff's marginal tax rate is 10%.Which of the following statement is false?

Which of the following statements about the jurisdiction variable is true?

The time period variable reflects the fact that:

Income-shifting transactions occur more frequently between related parties than between unrelated parties.

Pratt Company structured an income-generating transaction so that the $750,000 income and cash flow shifted to Pratt's wholly owned subsidiary,PTB Company.If Pratt's marginal tax rate is 40%,and PTB's tax rate is 15%,compute the tax savings from the income shift.

Mrs.Day structures a transaction to shift income from her 20Y1 tax year to her 20Y2 tax year.This tax planning strategy may be taking advantage of the:

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 4: Maxims of Income Tax Planning

Mrs.Stout has a $35,000 capital gain eligible for a 28% preferential tax rate.Which of the following statements is false?

The tax law provides that individuals do not pay tax on the first $250,000 of gain realized on the sale of a principal residence.This rule is an example of the:

Hilex Inc.structures a transaction to shift income from its 20Y0 tax year to its 20Y2 tax year.This tax planning strategy may be taking advantage of the:

The goal of tax planning is to reduce tax costs or increase tax savings as much as possible.

Hilex Inc.liquidates its investment in General Electric corporate bonds and reinvests the proceeds in City of Miami municipal bonds.This tax planning strategy may be taking advantage of the:

A strategy to shift income from one taxpayer to a different taxpayer reflects the entity variable,while a strategy to shift income from one year to a different year reflects the time period variable.

The after-tax value of a dollar of income to a high-tax entity is more than the after-tax value to a low-tax entity.

The assignment of income doctrine holds that:

Which of the following statements about ordinary income and capital gain is false?

The 15% preferential tax rate on capital gains has the same value to every individual taxpayer.

Which of the following statements about implicit and explicit taxes is false?

Planning opportunities are created when the tax law applies differentially to alternative business transactions.

Mrs.Bern's marginal tax rate is 33%,and her grandson Jeff's marginal tax rate is 10%.Which of the following statement is false?

Which of the following statements about the jurisdiction variable is true?

The time period variable reflects the fact that:

Income-shifting transactions occur more frequently between related parties than between unrelated parties.

Pratt Company structured an income-generating transaction so that the $750,000 income and cash flow shifted to Pratt's wholly owned subsidiary,PTB Company.If Pratt's marginal tax rate is 40%,and PTB's tax rate is 15%,compute the tax savings from the income shift.

Mrs.Day structures a transaction to shift income from her 20Y1 tax year to her 20Y2 tax year.This tax planning strategy may be taking advantage of the:

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters