Chap.3-4.Planning

Chap.3-4.Planning - Federal Income Taxation CHAPTER 3 &...

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Federal Income Taxation TAX PLANNING Terminology Tax cost - increase in any tax liability resulting from a transaction, e.g. earning taxable income. Tax savings - decrease in any tax liability resulting from a transaction, e.g., incurring a deductible business expense. Marginal tax rate - tax rate that applies to the next $ of taxable income. Tax cost or savings is a function of the taxpayer's MTR. Uncertainties associated with tax consequences: o Tax law ambiguity & audit risk Tax avoidance versus tax evasion o Tax law changes o MTR changes - due to taxable income changes or law changes. Structuring transactions to reduce tax. Although it is generally optimal to minimize tax, the best business/investment strategy is to maximize NPV.
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Chap.3-4.Planning - Federal Income Taxation CHAPTER 3 &...

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