Framework Themes

Question 1

What is the goal of effective tax planning?

Answer 1

To maximize after tax profits or wealth (not the same as tax minimization)

Question 2

What do you need to estimate to compute ATCF?

Answer 2

Marginal tax rate

Question 3

Define explicit taxes.

Answer 3

Actual taxes paid to the tax authority (government)

Question 4

Define implicit taxes.

Answer 4

Indirect (hidden) taxes paid in the form of lower before tax returns on tax favored assets

Question 5

Why do tax clienteles form?

Answer 5

Form because of tax-rate differences across investors and differentially-taxed assets (both domestically and internationally)

Question 6

What do high explicitly taxed investors generally prefer to invest in?

Answer 6

In implicitly taxed assets

Question 7

What do low explicitly taxed investors generally prefer to invest in?

Answer 7

In explicitly taxed assets

Question 8

Understanding how to compute what is necessary to determine the explicit tax on a transaction and its ATCF consequence?

Answer 8

TI (Taxable income)

Question 9

What are examples of assets that likely bear implicit taxes?

Answer 9

Tax-exempt municipal bonds, common stocks, houses