Taxes: Tax Planning

Question 1

Taxes:
Tax Planning
Using Tax Rates

Answer 1

Using Tax Rates

• marginal rate should be used for decision making
• if rates are increasing in future, accelerate income and defer deductions
• if rates are decreasing in future, accelerate deductions and defer income
• difference in rate over time:
  
  • changing tax brackets
  • time value of money (dont consider unless told)
  • statutory changes in rates
  • shift income to lower bracket tax payers
  • difference based on character
  • difference based on jurisdiction
  • effective income rate = federal liability/income

Question 2

Taxes:
Tax Planning
Tax Strategies

Answer 2

Tax Strategies

• avoid income by choosing non-taxable fringe benefits over salary
• defer income by meeting rules such as like-kind exchange
• max contributions to retirement plans
• recognize capital gains if losses already recognized
• generate passive income to offset recognized passive loss
• ensure that carryforwards are used before expired

Question 3

Taxes:
Tax Planning
Planning for AMT

Answer 3

Planning for AMT

• reduce adj & preferences that increase AMT
• minimize deductions not allowed in years expected to be subject to AMT
  
  • no deduction for taxes
  • no allowance for 2% misc deductions
  • home mortgage interest only deductible if loan proceeds used to improve loan
• accelerate income into AMT year

Question 4

Taxes:
Tax Planning
Charities

Answer 4

Tax Planning
Charities
- gifting appreciated property to charities avoids recognizing appreciation as income
- loss property should not be gifted because loss not recognized