Question 1

Rolando's employer pays year-end bonuses each year on December 31. Rolando, a cash basis taxpayer, would prefer to not pay tax on his bonus this year. So, he leaves town on December 31, 2016 and doesn't pick up his check until January 2, 2017. When should Rolando report his bonus?

Accepted Answer

A)   2016.
B)   it does not matter.
C)   Rolando can choose the year to report the income.
D)   2017.
E)   None of the choices are correct.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The timing strategy becomes more attractive as tax rates decrease.

Accepted Answer

A) True 
 B)False

Question 4

Assuming a positive interest rate, the present value of money suggests:

Accepted Answer

A)   $1 today > $1 in one year.
B)   $1 today Ç $1 in one year.
C)   $1 today 
D)   $1 today = $1 in one year.
E)   None of the choices are correct.

Question 5

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

Accepted Answer

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

Question 6

If Tom invests $60,000 in a taxable corporate bond that provides a 5 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures? Assume Tom's marginal tax rate is 35 percent.

Accepted Answer

A)   $79,621; $121,716.
B)   $92,782; $178,414.
C)   $88,647; $159,198.
D)   $77,495; $113,750.
E)   None of the choices are correct.

Question 7

The goal of tax planning is tax minimization.

Accepted Answer

A) True 
 B)False

Question 8

If tax rates are decreasing:

Accepted Answer

A)   taxpayers should accelerate deductions.
B)   taxpayers should defer deductions.
C)   taxpayers should accelerate income.
D)   taxpayers should defer deductions and accelerate income.
E)   None of the choices are correct.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)   A high tax rate taxpayer investing in tax exempt municipal bonds.
B)   A corporation paying its owner a $20,000 salary.
C)   A corporation paying its shareholders a $20,000 dividend.
D)   A cash-basis business delaying billing its customers until after year end.
E)   None of the choices are correct.

Question 11

Jayzee is a single taxpayer who operates a sole proprietorship. He expects his taxable income next year to be $150,000, of which $125,000 is attributed to his sole proprietorship. Jayzee iscontemplating incorporating his sole proprietorship. Using the 2017 single individual tax brackets and the corporate tax brackets, how much current tax could this strategy save Jayzee? (Ignore any Social Security, Medicare, or Self Employment Tax issues.) How much income should be retainedin the corporation? (Use tax rate schedule; Corporate tax rate schedule)

Accepted Answer

Assuming Jayzee's go...

Question 12

Jared, a tax novice, has recently learned of several foreign tax havens (i.e., countries with low taxrates). He is considering locating his manufacturing operations in one of these countries solely based on their low tax rates. What types of taxes is Jared ignoring? Explain how these other taxes mayaffect the viability of Jared's choice to locate in a foreign tax haven.

Accepted Answer

The concept of implicit taxes suggests t...

Question 13

When considering cash inflows, higher present values are preferred.

Accepted Answer

A) True 
 B)False

Question 14

Richard recently received $10,000 of compensation for some consulting work (paid in cash). Jeffrey recently received $10,000 of interest income from City of Dallas bonds. Both taxpayers report no taxable income from these transactions. Is this considered tax avoidance or tax evasion? What is the difference, if any, between the two?

Accepted Answer

Richard is engaged in tax evasion. Jeffr...

Question 15

A common income shifting strategy is to:

Accepted Answer

A)   shift deductions from low tax rate taxpayers to high tax rate taxpayers.
B)   shift deductions from high tax rate taxpayers to low tax rate taxpayers.
C)   accelerate tax deductions.
D)   shift income from low tax rate taxpayers to high tax rate taxpayers.
E)   None of the choices are correct.

Question 16

Which of the following does not limit the income shifting strategy?

Accepted Answer

A)   Assignment of income doctrine.
B)   Business purpose doctrine.
C)   Step-transaction doctrine.
D)   Substance-over-form doctrine.
E)   None of the choices are correct.

Question 17

Effective tax planning requires all of these considerations except:

Accepted Answer

A)   the other party's tax costs of alternative transactions.
B)   nontax factors.
C)   the other party's nontax costs of alternative transactions.
D)   the taxpayer's tax costs of alternative transactions.
E)   All of the choices are required considerations.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The income shifting strategy requires taxpayers with varying tax rates.

Accepted Answer

A) True 
 B)False

Question 20

If tax rates are decreasing:

Accepted Answer

A)   taxpayers should defer deductions and accelerate income.
B)   taxpayers should defer income.
C)   taxpayers should accelerate income.
D)   taxpayers should defer deductions.
E)   None of the choices are correct.

Exam 3: Tax Planning Strategies and Related Limitations

Correct Answer
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Assuming Jayzee's go...
View Answer

Rolando's employer pays year-end bonuses each year on December 31. Rolando, a cash basis taxpayer, would prefer to not pay tax on his bonus this year. So, he leaves town on December 31, 2016 and doesn't pick up his check until January 2, 2017. When should Rolando report his bonus?

Correct Answer
verified

When considering cash inflows, higher present values are preferred.

Correct Answer
verified

The goal of tax planning is tax minimization.

Correct Answer
verified

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

Correct Answer
verified

Which of the following does not limit the income shifting strategy?

Correct Answer
verified

If tax rates are decreasing:

Correct Answer
verified

If tax rates are decreasing:

Correct Answer
verified

Correct Answer
verified
The concept of implicit taxes suggests t...
View Answer

The income shifting strategy requires taxpayers with varying tax rates.

Correct Answer
verified

Effective tax planning requires all of these considerations except:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The timing strategy becomes more attractive as tax rates decrease.

Correct Answer
verified

A common income shifting strategy is to:

Correct Answer
verified

Correct Answer
verified
Richard is engaged in tax evasion. Jeffr...
View Answer

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

Correct Answer
verified

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

Correct Answer
verified

Assuming a positive interest rate, the present value of money suggests:

Correct Answer
verified

If Tom invests $60,000 in a taxable corporate bond that provides a 5 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures? Assume Tom's marginal tax rate is 35 percent.

Correct Answer
verified

Exam 3: Tax Planning Strategies and Related Limitations

Correct AnswerverifiedAssuming Jayzee's go...View AnswerShow Answer

Rolando's employer pays year-end bonuses each year on December 31. Rolando, a cash basis taxpayer, would prefer to not pay tax on his bonus this year. So, he leaves town on December 31, 2016 and doesn't pick up his check until January 2, 2017. When should Rolando report his bonus?

Correct AnswerverifiedShow Answer

When considering cash inflows, higher present values are preferred.

Correct AnswerverifiedShow Answer

The goal of tax planning is tax minimization.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following does not limit the income shifting strategy?

Correct AnswerverifiedShow Answer

If tax rates are decreasing:

Correct AnswerverifiedShow Answer

If tax rates are decreasing:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe concept of implicit taxes suggests t...View AnswerShow Answer

The income shifting strategy requires taxpayers with varying tax rates.

Correct AnswerverifiedShow Answer

Effective tax planning requires all of these considerations except:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The timing strategy becomes more attractive as tax rates decrease.

Correct AnswerverifiedShow Answer

A common income shifting strategy is to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedRichard is engaged in tax evasion. Jeffr...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assuming a positive interest rate, the present value of money suggests:

Correct AnswerverifiedShow Answer

If Tom invests $60,000 in a taxable corporate bond that provides a 5 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures? Assume Tom's marginal tax rate is 35 percent.

Correct AnswerverifiedShow Answer

Correct Answer
verified
Assuming Jayzee's go...
View Answer

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
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
The concept of implicit taxes suggests t...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Richard is engaged in tax evasion. Jeffr...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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