Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The income shifting strategy requires taxpayers with varying tax rates.

Accepted Answer

A) True 
 B)False

Question 3

Tax savings generated from deductions are considered cash inflows.

Accepted Answer

A) True 
 B)False

Question 4

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)?

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 5

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

Accepted Answer

A)  $10,000 
B)  $9,090 
C)  $8,260 
D)  $11,000 
E)  None of these 
A)  $10,000 
B)  $9,090 
C)  $8,260 
D)  $11,000 
E)  None of these

Question 6

The income shifting and timing strategies are examples of:

Accepted Answer

A)  tax avoidance 
B)  tax evasion 
C)  illegal taxpayer strategies 
D)  All of these 
E)  None of these 
A)  tax avoidance 
B)  tax evasion 
C)  illegal taxpayer strategies 
D)  All of these 
E)  None of these

Question 7

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.

Accepted Answer

The three basic tax strategies discussed

Question 8

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?

Accepted Answer

If Antonella receives the $20,000 in Dec

Question 9

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.

Accepted Answer

Danny has an incomplete view of the goal

Question 10

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 11

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?

Accepted Answer

Boeing should choose to operate the plan

Question 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  $20,000 
B)  $13,620 
C)  $18,520 
D)  $21,600 
E)  None of these 
A)  $20,000 
B)  $13,620 
C)  $18,520 
D)  $21,600 
E)  None of these

Question 15

Implicit taxes may reduce the benefits of the conversion strategy.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following may limit the conversion strategy?

Accepted Answer

A)  implicit taxes 
B)  assignment of income doctrine 
C)  constructive receipt doctrine 
D)  activities with preferential tax rates 
E)  None of these 
A)  implicit taxes 
B)  assignment of income doctrine 
C)  constructive receipt doctrine 
D)  activities with preferential tax rates 
E)  None of these

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 these 
A)  income shifting 
B)  timing 
C)  conversion 
D)  arms length transaction 
E)  None of these

Question 18

When considering cash outflows, higher present values are preferred.

Accepted Answer

A) True 
 B)False

Question 19

A common income shifting strategy is to:

Accepted Answer

A)  shift income from low tax rate taxpayers to high tax rate taxpayers 
B)  shift deductions from low tax rate taxpayers to high tax rate taxpayers 
C)  shift deductions from high tax rate taxpayers to low tax rate taxpayers 
D)  accelerate tax deductions 
E)  None of these 
A)  shift income from low tax rate taxpayers to high tax rate taxpayers 
B)  shift deductions from low tax rate taxpayers to high tax rate taxpayers 
C)  shift deductions from high tax rate taxpayers to low tax rate taxpayers 
D)  accelerate tax deductions 
E)  None of these

Question 20

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 these 
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 these

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

The income shifting strategy requires taxpayers with varying tax rates.

Tax savings generated from deductions are considered cash inflows.

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)?

The income shifting and timing strategies are examples of:

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.

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.

The constructive receipt doctrine:

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

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

Implicit taxes may reduce the benefits of the conversion strategy.

Which of the following may limit the conversion strategy?

Which is not a basic tax planning strategy?

When considering cash outflows, higher present values are preferred.

A common income shifting strategy is to:

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

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Filters

Exam 3: Tax Planning Strategies and Related Limitations

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

The income shifting strategy requires taxpayers with varying tax rates.

Tax savings generated from deductions are considered cash inflows.

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)?

The income shifting and timing strategies are examples of:

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.

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.

The constructive receipt doctrine:

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

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

Implicit taxes may reduce the benefits of the conversion strategy.

Which of the following may limit the conversion strategy?

Which is not a basic tax planning strategy?

When considering cash outflows, higher present values are preferred.

A common income shifting strategy is to:

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

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Filters