Question 1

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 2

Paying "fabricated" expenses in high tax rate years is an example of:

Accepted Answer

A) conversion 
B) tax evasion 
C) timing 
D) income shifting 
E) None of these 
A) conversion 
B) tax evasion 
C) timing 
D) income shifting 
E) None of these

Question 3

Assuming an after-tax rate of return of 10%,John should prefer to pay $85 today instead of $100 in one year.1/(1 + .10) = .909 PV.$100 x.909 = $90.90 vs $85.00.

Accepted Answer

A) True 
 B)False

Question 4

If tax rates will be higher next year,taxpayers should accelerate their deductions regardless of their after-tax rate of return.

Accepted Answer

A) True 
 B)False

Question 5

Virtually every transaction involves the taxpayer and two other parties that have an interest in the tax ramifications of the transaction.

Accepted Answer

A) True 
 B)False

Question 6

In general,tax planners prefer to defer income.This is an example of the conversion strategy.

Accepted Answer

A) True 
 B)False

Question 7

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 8

There are two basic timing-related tax rate strategies.What are they? What is the intent of each strategy? In which situations do the tax rate and timing strategies provide conflicting recommendations? What information do you need to determine the appropriate action?

Accepted Answer

The two basic timing-related tax rate st

Question 9

If tax rates are decreasing:

Accepted Answer

A) taxpayers should accelerate income 
B) taxpayers should defer deductions 
C) taxpayers should accelerate deductions 
D) taxpayers should defer deductions and accelerate income 
E) None of these 
A) taxpayers should accelerate income 
B) taxpayers should defer deductions 
C) taxpayers should accelerate deductions 
D) taxpayers should defer deductions and accelerate income 
E) None of these

Question 10

The constructive receipt doctrine is a natural limitation for the conversion strategy.

Accepted Answer

A) True 
 B)False

Question 11

In general,tax planners prefer to accelerate deductions.

Accepted Answer

A) True 
 B)False

Question 12

A taxpayer paying his 10 year old daughter $50,000 a year for consulting likely violates which doctrine?

Accepted Answer

A) constructive receipt doctrine 
B) implicit tax doctrine 
C) substance-over-form doctrine 
D) step-transaction doctrine 
E) None of these 
A) constructive receipt doctrine 
B) implicit tax doctrine 
C) substance-over-form doctrine 
D) step-transaction doctrine 
E) None of these

Question 13

Assume that Lucas' marginal tax rate is 30% and his tax rate on dividends is 15%.If a dividend-paying stock (with no growth potential) pays an 8% dividend yield,what interest rate would a municipal bond have to offer for Lucas to be indifferent between the two investments?

Accepted Answer

A) 30% 
B) 15% 
C) 8% 
D) 6.8% 
E) None of these 
A) 30% 
B) 15% 
C) 8% 
D) 6.8% 
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

Effective tax planning does not require consideration of:

Accepted Answer

A) nontax factors 
B) the taxpayer's tax costs of alternative transactions 
C) the other party's tax costs of alternative transactions 
D) the other party's nontax costs of alternative transactions 
E) None of these 
A) nontax factors 
B) the taxpayer's tax costs of alternative transactions 
C) the other party's tax costs of alternative transactions 
D) the other party's nontax costs of alternative transactions 
E) None of these

Question 16

Assume that Will's marginal tax rate is 32% and his tax rate on dividends is 15%.If a dividend-paying stock (with no growth potential) pays a dividend yield of 8%,what interest rate must the corporate bond offer for Will to be indifferent between the two investments?

Accepted Answer

A) 12% 
B) 11% 
C) 10% 
D) 8% 
E) None of these 
A) 12% 
B) 11% 
C) 10% 
D) 8% 
E) None of these

Question 17

Assume that Lavonia's marginal tax rate is 20%.If a city of Tampa bond pays 5% interest,what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds?

Accepted Answer

A) 20% 
B) 8% 
C) 7% 
D) 4% 
E) None of these 
A) 20% 
B) 8% 
C) 7% 
D) 4% 
E) None of these

Question 18

The concept of present value is an important part of the timing strategy.

Accepted Answer

A) True 
 B)False

Question 19

Assume that Javier is indifferent between investing in a city of El Paso bond that pays 5% interest and a corporate bond that pays 6.25% interest.What is Javier's marginal tax rate?

Accepted Answer

A) 50% 
B) 40% 
C) 30% 
D) 20% 
E) None of these 
A) 50% 
B) 40% 
C) 30% 
D) 20% 
E) None of these

Question 20

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 10th.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,t

Which of the following may limit the conversion strategy?

Paying "fabricated" expenses in high tax rate years is an example of:

Assuming an after-tax rate of return of 10%,John should prefer to pay $85 today instead of $100 in one year.1/(1 + .10) = .909 PV.$100 x.909 = $90.90 vs $85.00.

If tax rates will be higher next year,taxpayers should accelerate their deductions regardless of their after-tax rate of return.

Virtually every transaction involves the taxpayer and two other parties that have an interest in the tax ramifications of the transaction.

In general,tax planners prefer to defer income.This is an example of the conversion strategy.

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?

There are two basic timing-related tax rate strategies.What are they? What is the intent of each strategy? In which situations do the tax rate and timing strategies provide conflicting recommendations? What information do you need to determine the appropriate action?

If tax rates are decreasing:

The constructive receipt doctrine is a natural limitation for the conversion strategy.

In general,tax planners prefer to accelerate deductions.

A taxpayer paying his 10 year old daughter $50,000 a year for consulting likely violates which doctrine?

Assume that Lucas' marginal tax rate is 30% and his tax rate on dividends is 15%.If a dividend-paying stock (with no growth potential) pays an 8% dividend yield,what interest rate would a municipal bond have to offer for Lucas to be indifferent between the two investments?

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?

Effective tax planning does not require consideration of:

Assume that Will's marginal tax rate is 32% and his tax rate on dividends is 15%.If a dividend-paying stock (with no growth potential) pays a dividend yield of 8%,what interest rate must the corporate bond offer for Will to be indifferent between the two investments?

Assume that Lavonia's marginal tax rate is 20%.If a city of Tampa bond pays 5% interest,what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds?

The concept of present value is an important part of the timing strategy.

Assume that Javier is indifferent between investing in a city of El Paso bond that pays 5% interest and a corporate bond that pays 6.25% interest.What is Javier's marginal tax rate?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Individual Tax Overview

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

Which of the following may limit the conversion strategy?

Paying "fabricated" expenses in high tax rate years is an example of:

Assuming an after-tax rate of return of 10%,John should prefer to pay $85 today instead of $100 in one year.1/(1 + .10) = .909 PV.$100 x.909 = $90.90 vs $85.00.

If tax rates will be higher next year,taxpayers should accelerate their deductions regardless of their after-tax rate of return.

Virtually every transaction involves the taxpayer and two other parties that have an interest in the tax ramifications of the transaction.

In general,tax planners prefer to defer income.This is an example of the conversion strategy.

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?

There are two basic timing-related tax rate strategies.What are they? What is the intent of each strategy? In which situations do the tax rate and timing strategies provide conflicting recommendations? What information do you need to determine the appropriate action?

If tax rates are decreasing:

The constructive receipt doctrine is a natural limitation for the conversion strategy.

In general,tax planners prefer to accelerate deductions.

A taxpayer paying his 10 year old daughter $50,000 a year for consulting likely violates which doctrine?

Assume that Lucas' marginal tax rate is 30% and his tax rate on dividends is 15%.If a dividend-paying stock (with no growth potential) pays an 8% dividend yield,what interest rate would a municipal bond have to offer for Lucas to be indifferent between the two investments?

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?

Effective tax planning does not require consideration of:

Assume that Will's marginal tax rate is 32% and his tax rate on dividends is 15%.If a dividend-paying stock (with no growth potential) pays a dividend yield of 8%,what interest rate must the corporate bond offer for Will to be indifferent between the two investments?

Assume that Lavonia's marginal tax rate is 20%.If a city of Tampa bond pays 5% interest,what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds?

The concept of present value is an important part of the timing strategy.

Assume that Javier is indifferent between investing in a city of El Paso bond that pays 5% interest and a corporate bond that pays 6.25% interest.What is Javier's marginal tax rate?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Individual Tax Overview

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