Which is an example of a tax planning strategy?
- In general, tax planners prefer to defer income. This is an example of the conversion strategy. The timing strategy is particularly effective for cash-basis taxpayers. The timing strategy becomes more attractive as tax rates decrease. The timing strategy becomes more attractive as interest rates (i.e., rates of return) increase.
Which of the following tax planning strategies is based on the present value of money group of answer choices?
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.
Which of the following tax planning strategies is based on the present value of money quizlet?
Which of the following tax planning strategies is based on the present value of money? timing. Assuming a positive interest rate, the present value of money suggests: $1 today > $1 in one year.
Which of the following does not limit the benefits of deferring income?
Which of the following does not limit the benefits of deferring income? increasing tax rates.
Which of the following may limit the income shifting strategy?
The income-shifting strategy requires taxpayers with varying tax rates. The assignment of income doctrine is a natural limitation to the timing strategy. The business purpose, step-transaction, and substance-over-form doctrines may limit the income-shifting strategy.
Which of the following strategies exploits the fact that tax rates vary by activity?
Which of the following strategies exploits the fact that tax rates vary by activity (e.g., income type)? Conversion: The conversion strategy is based on fact that different activities are subject to different tax rates.
What is true tax planning?
Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to allow you to pay the lowest taxes possible. A plan that minimizes how much you pay in taxes is referred to as tax efficient. Tax planning should be an essential part of an individual investor’s financial plan.
Which of the following is an example of a tax avoidance strategy?
Common examples of tax avoidance include contributing to a retirement account with pre-tax dollars and claiming deductions and credits. Tax evasion, by contrast, is the illegal act of concealing or misrepresenting income to avoid taxation, and it’s not only dishonest, but also punishable by law.
Which of the following is generally the most authoritative source of tax law?
The Internal Revenue Code is a compilation of tax statutes arranged by subject and is located under title 26 of the United States Code (U.S.C.). The Code is the foundation of all tax law and is the most authoritative source.
Which of the following has the highest authoritative weight?
IRC (Internal Revenue Code, Treaties and the Supreme Court Rulings are the highest authoritative weight. Hence, the correct option is A.
How are deferred comp plans taxed?
How deferred compensation is taxed. Generally speaking, the tax treatment of deferred compensation is simple: Employees pay taxes on the money when they receive it, not necessarily when they earn it. The year you receive your deferred money, you’ll be taxed on $200,000 in income—10 years’ worth of $20,000 deferrals.
How do I defer taxable income?
There are many other ways to postpone your taxable income. For instance, you can contribute to a traditional IRA, buy permanent life insurance (the cash value part grows tax deferred), or invest in certain savings bonds. You may want to speak with a tax professional about your tax planning options.
What is deferred compensation on tax transcript?
Deferred compensation is a type of employer-sponsored benefits plan where a company places assets into a special account. The year of distribution of the deferred compensation is when the income is added to adjusted gross income often when income is lower, such as in retirement.
What is the income shifting tax strategy?
Income shifting, also known as income splitting, is a tax planning technique that transfers income from high to low tax bracket taxpayers. It is also used to reduce the overall tax burden by moving income from a high to low tax rate jurisdiction.
What is shifting in taxation?
The incidence of a tax rests on the person(s) whose real net income is reduced by the tax. In other words, the tax is shifted from the business to the consumer. Taxes may be shifted in several directions.
Why is tax shifting used?
The objective behind tax shifting is to stop taxing the things we do want (like income and savings) and shift towards taxing things people collectively do not want (like waste and pollution).