Question 1

Which of the following tax planning strategies is based on the present value of money?

Accepted Answer

A)   timing.
B)   tax avoidance.
C)   income shifting.
D)   conversion.
E)   None of the choices are correct.

Question 2

Tax savings generated from deductions are considered cash inflows.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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 the choices are correct.

Question 5

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 6

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 the choices are correct.

Question 7

The time value of money suggests that $1 in one year from now is worth less than $1 today.

Accepted Answer

A) True 
 B)False

Question 8

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 from a cash-flow perspective?

Accepted Answer

A)   30.00%.
B)   15.00%.
C)   8.00%.
D)   6.80%.
E)   None of the choices are correct.

Question 9

Assuming an after-tax rate of return of 10%, 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

Question 10

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 the choices are correct.

Question 11

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 the choices are correct.

Question 12

If Julius has a 30% tax rate and a 10% after-tax rate of return, a $40,000 tax deduction in two years will save how much tax in today's dollars? Use Exhibit 3.1. (Round present and future value amounts to 3 places)

Accepted Answer

A)   $40,000.
B)   $9,912.
C)   $33,040.
D)   $12,000.
E)   None of the choices are correct.

Question 13

Rob is currently considering investing in municipal bonds that earn 4% interest or taxable bonds issued by Dell Computer that pay 6.5%. If Rob's tax rate is 20%, which bond should he choose? Which bond should he choose if his tax rate is 30%? At what tax rate would he be indifferent to the municipal bond or to the corporate bond? What strategy is this decision based upon?

Accepted Answer

Rob's after tax rate of return on the ta...

Question 14

The assignment of income doctrine is a natural limitation to the timing strategy.

Accepted Answer

A) True 
 B)False

Question 15

Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.

Accepted Answer

A) True 
 B)False

Exam 3: Tax Planning Strategies and Related Limitations

Tax savings generated from deductions are considered cash inflows.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The assignment of income doctrine is a natural limitation to the timing strategy.

Correct Answer
verified

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?

Correct Answer
verified

If Julius has a 30% tax rate and a 10% after-tax rate of return, a $40,000 tax deduction in two years will save how much tax in today's dollars? Use Exhibit 3.1. (Round present and future value amounts to 3 places)

Correct Answer
verified

Correct Answer
verified
Rob's after tax rate of return on the ta...
View Answer

The constructive receipt doctrine:

Correct Answer
verified

The time value of money suggests that $1 in one year from now is worth less than $1 today.

Correct Answer
verified

Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.

Correct Answer
verified

If tax rates are decreasing:

Correct Answer
verified

Correct Answer
verified

A common income shifting strategy is to:

Correct Answer
verified

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.

Correct Answer
verified
The three basic tax strategies discussed...
View Answer

Which of the following tax planning strategies is based on the present value of money?

Correct Answer
verified

Exam 3: Tax Planning Strategies and Related Limitations

Tax savings generated from deductions are considered cash inflows.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The assignment of income doctrine is a natural limitation to the timing strategy.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

If Julius has a 30% tax rate and a 10% after-tax rate of return, a $40,000 tax deduction in two years will save how much tax in today's dollars? Use Exhibit 3.1. (Round present and future value amounts to 3 places)

Correct AnswerverifiedShow Answer

Correct AnswerverifiedRob's after tax rate of return on the ta...View AnswerShow Answer

The constructive receipt doctrine:

Correct AnswerverifiedShow Answer

The time value of money suggests that $1 in one year from now is worth less than $1 today.

Correct AnswerverifiedShow Answer

Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.

Correct AnswerverifiedShow Answer

If tax rates are decreasing:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A common income shifting strategy is to:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedThe three basic tax strategies discussed...View AnswerShow Answer

Which of the following tax planning strategies is based on the present value of money?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified
Rob's after tax rate of return on the ta...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The three basic tax strategies discussed...
View Answer

Correct Answer
verified