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| 1 | |
The goal of tax planning is to maximize after-tax wealth. |
| | A) | True |
| | B) | False |
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| 2 | |
The timing strategy is based on the idea that the period in which income is taxed affects the tax costs of the income. |
| | A) | True |
| | B) | False |
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| 3 | |
The present value concept becomes more important as interest rate increase. |
| | A) | True |
| | B) | False |
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| 4 | |
The conversion strategy becomes more important as interest rates increase. |
| | A) | True |
| | B) | False |
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| 5 | |
If tax rates will be the same next year, the taxpayer should generally accelerate deductions. |
| | A) | True |
| | B) | False |
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| 6 | |
The income shifting strategy exploits the fact that tax rates vary across taxpayers or jurisdictions. |
| | A) | True |
| | B) | False |
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| 7 | |
The conversion strategy exploits the fact that tax rates vary across time. |
| | A) | True |
| | B) | False |
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| 8 | |
Which of the following strategies exploits the fact that tax rates vary by activity (e.g., income type)? |
| | A) | Timing |
| | B) | Present value |
| | C) | Income shifting |
| | D) | Conversion |
| | E) | Evasion |
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| 9 | |
If Jack earns an 8% after-tax rate of return, $10,000 received in three years is worth how much today (rounded)? |
| | A) | $10,000 |
| | B) | $11,664 |
| | C) | $9,260 |
| | D) | $8,570 |
| | E) | $7,940 |
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| 10 | |
A common income shifting strategy is to: |
| | A) | Shift income from a high tax rate jurisdiction to a low tax rate jurisdiction |
| | B) | Shift income from a low tax rate jurisdiction to a high tax rate jurisdiction |
| | C) | Invest in tax exempt bonds |
| | D) | Defer income |
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| 11 | |
The assignment of income doctrine most likely limits which of the following strategies? |
| | A) | conversion |
| | B) | timing |
| | C) | income shifting |
| | D) | tax minimization |
| | E) | none of the above |
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| 12 | |
Assume that Bill's marginal tax rate is 40%. If corporate bonds pay 10% interest, what interest rate would a municipal bond have to offer for Bill to be indifferent between the two bonds? |
| | A) | 10% |
| | B) | 16.67% |
| | C) | 8% |
| | D) | 6% |
| | E) | None of the above |
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| 13 | |
If Rachel has a 40% tax rate and a 10% after-tax rate of return, a $100,000 tax deduction in one year will save how much tax in today's dollars (rounded)? |
| | A) | $100,000 |
| | B) | $40,000 |
| | C) | $37,040 |
| | D) | $36,360 |
| | E) | None of the above |
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| 14 | |
Which of the following is an example of the conversion strategy? |
| | A) | Accelerating deductions |
| | B) | Deferring income |
| | C) | An employer providing tax free benefits to employees instead of salary |
| | D) | A high-tax rate parent employing her low-tax-rate son in the family business. |
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| 15 | |
Which of the following items is illegal under the tax law? |
| | A) | Tax avoidance |
| | B) | Tax evasion |
| | C) | Accelerating deductions |
| | D) | Deferring income |
| | E) | All of the above are legal |
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