Question 1

Rolando's employer pays year-end bonuses each year on December 31.Rolando, a cash-basis taxpayer, would prefer not to pay tax on his bonus this year.So, he leaves town on December 31, 2018, and doesn't pick up his check until January 2, 2019.When should Rolando report his bonus?

Accepted Answer

A) 2019. 
B) 2018. 
C) Rolando can choose the year to report the income. 
D) it does not matter. 
E) None of the choices are correct.

Question 2

Which of the following does not limit the benefits of deferring income?

Accepted Answer

A) Increasing tax rates. 
B) A taxpayer with severe cash flow needs. 
C) If continuing an investment would generate a low rate of return. 
D) If continuing an investment would subject the taxpayer to unnecessary risk. 
E) None of the choices are correct.

Question 3

Tax savings generated from deductions are considered cash inflows.

Accepted Answer

A) True 
 B)False

Question 4

Implicit taxes may reduce the benefits of the conversion strategy.

Accepted Answer

A) True 
 B)False

Question 5

In general, tax planners prefer to accelerate deductions.

Accepted Answer

A) True 
 B)False

Question 6

Assume that Larry's marginal tax rate is 24 percent.If corporate bonds pay 10 percent interest, what interest rate would a municipal bond have to offer for Larry to be indifferent between the two bonds?

Accepted Answer

A) 24.00 percent. 
B) 12.00 percent. 
C) 10.00 percent. 
D) 7)60 percent. 
E) None of the choices are correct.

Question 7

Paying dividends to shareholders is one effective way of shifting income from a corporation to its shareholders.

Accepted Answer

A) True 
 B)False

Question 8

The goal of tax planning is tax minimization.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is an example of the timing strategy?

Accepted Answer

A) A cash-basis taxpayer paying all outstanding bills by year-end. 
B) A parent employing her child in the family business. 
C) A business paying its owner a $30,000 salary. 
D) A taxpayer investing in a tax-preferred investment. 
E) None of the choices are correct.

Question 10

Assume that Lucas's marginal tax rate is 32 percent and his tax rate on dividends is 15 percent.If a dividend-paying stock (with no growth potential)pays an 8 percent dividend yield, what interest rate would a municipal bond have to offer for Lucas to be indifferent between the two investments from a cash-flow perspective?

Accepted Answer

A) 32.00 percent 
B) 15.00 percent. 
C) 8)00 percent. 
D) 6)80 percent. 
E) None of the choices are correct.

Question 11

Compare and contrast the constructive receipt doctrine and the assignment of income doctrine.
In what situations do these doctrines apply? What tax planning strategies does each doctrine limit?

Accepted Answer

The answer of Compare and contrast the constructive receipt doctrine...

Question 12

A taxpayer instructing her son to collect rent checks for the taxpayer's property and to report this as taxable income on the son's tax return violates which doctrine?

Accepted Answer

A) Constructive receipt doctrine. 
B) Implicit tax doctrine. 
C) Assignment of income doctrine. 
D) Step-transaction doctrine. 
E) None of the choices are correct.

Question 13

Lucky owns a maid service that cleans several local businesses nightly.Lucky, a high tax rate taxpayer, would like to shift some income to his son Rocco.Lucky tells all of his customers (who are always timely in their payments)to pay Rocco, and then Rocco will report 50 percent of the income as a collection fee.Lucky will report the remaining 50 percent.Will this shift the income from Lucky to Rocco? Why or why not? What doctrines influence your answer? Any suggestions for Lucky?

Accepted Answer

The answer of Lucky owns a maid service that cleans...

Question 14

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 the choices are correct.

Question 15

Assuming an after-tax rate of return of 10 percent, John should prefer to pay an expense of $85 today instead of an expense of $100 in one year.Use Exhibit 3.1.

Accepted Answer

A) True 
 B)False

Exam 3: Tax Planning Strategies and Related Limitations

Rolando's employer pays year-end bonuses each year on December 31.Rolando, a cash-basis taxpayer, would prefer not to pay tax on his bonus this year.So, he leaves town on December 31, 2018, and doesn't pick up his check until January 2, 2019.When should Rolando report his bonus?

Which of the following does not limit the benefits of deferring income?

Tax savings generated from deductions are considered cash inflows.

Implicit taxes may reduce the benefits of the conversion strategy.

In general, tax planners prefer to accelerate deductions.

Assume that Larry's marginal tax rate is 24 percent.If corporate bonds pay 10 percent interest, what interest rate would a municipal bond have to offer for Larry to be indifferent between the two bonds?

Paying dividends to shareholders is one effective way of shifting income from a corporation to its shareholders.

The goal of tax planning is tax minimization.

Which of the following is an example of the timing strategy?

Compare and contrast the constructive receipt doctrine and the assignment of income doctrine. In what situations do these doctrines apply? What tax planning strategies does each doctrine limit?

A taxpayer instructing her son to collect rent checks for the taxpayer's property and to report this as taxable income on the son's tax return violates which doctrine?

If tax rates are decreasing:

Assuming an after-tax rate of return of 10 percent, John should prefer to pay an expense of $85 today instead of an expense of $100 in one year.Use Exhibit 3.1.