Question & Answer

What factors increase the benefits of accelerating deductions or deferring income?

How do changing tax rates affect the timing strategy?  What information do you need to determine the appropriate timing strategy when tax rates change?

Assume that on February 1, Procter & Gamble (P&G) paid $720,000 in advance for 2 years’ insurance coverage. Prepare P&G’s February 1 journal entry and the annual adjusting entry on June 30.

Describe the ways in which the timing strategy has limitations

The concept of the time value of money suggests that $1 today is not equal to $1 in the future.  Explain why this is true.

Why is understanding the time value of money important for tax planning?

What two factors increase the difference between present and future values?

What are some ways that a parent could effectively shift income to a child?  What are some of the disadvantages of these methods?

What is the key factor in shifting income from a business to its owners?  What are some methods of shifting income in this context?

Explain why paying dividends is not an effective way to shift income from a corporation to its owners.

What are some of the common examples of the conversion strategy?

What is needed to implement the conversion strategy?

Explain how implicit taxes may limit the benefits of the conversion strategy

Do after-tax rates of return for investments in either interest or dividend paying securities increase with the length of the investment?  Why or why not?

Discuss the underlying concern to tax policy makers in distributions in which a partner receives more or less than their share of the partnership’s hot assets.

Jackson and Ashley Turner (both 45 years old) are married and want to contribute to a Roth IRA for Ashley. For the current year, their AGI is $235,000. Jackson and Ashley each earned half of the income. a. How much can Ashley contribute to her Roth IRA if they file a joint return? b. How much can Ashley contribute if she files a separate return? c. Assume that Ashley earned all of the couple’s income and that she contributed the maximum amount she is allowed to contribute to a Roth IRA. What amount can be contributed to Jackson’s Roth IRA?

Explain how the Fed’s facility programs improved liquidity in some debt markets. (LO3)

What is an “implicit tax” and how does it affect a taxpayer’s decision to purchase municipal bonds?

Several judicial doctrines limit basic tax planning strategies.  What are they?  Which planning strategies do they limit?

Explain the assignment of income doctrine.  In what situations would this doctrine potentially apply?

{Planning} Jackie has a corporate client that has recently received a 30-day notice from the IRS with a $100,000 tax assessment.  Her client is considering requesting an appeals conference to contest the assessment.  What factors should Jackie advise her client to consider before requesting an appeals conference?

Describe the business purpose, step-transaction, and substance-over-form doctrines.  What types of tax planning strategies may these doctrines inhibit?

What is the difference between tax avoidance and tax evasion?

What are the rewards of tax avoidance?  What are the rewards of tax evasion?

“Tax avoidance is discouraged by the courts and Congress.”  Is this statement true or false?  Please explain.