Chap.3-4.Planning131__revised_Sp07

Chap.3-4.Planning131__revised_Sp07 - Tax Planning Tax Cost...

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Tax Planning
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Tax Cost Increase in any tax liability resulting from a transaction Example: What is the tax cost associated with earning additional $1,000 in taxable income? MTR = 28%
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Tax Savings Decrease in tax liability resulting from a transaction Example: What is the tax savings associated with incurring a $1,000 business deduction? MTR = 31%
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Tax Planning Generally, focus on maximizing after tax cash flows Incorporate tax cost or tax savings in cash flow analysis Discount using present value concepts when multiple future time periods are involved
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Steps in figuring net cash flows 1. Compute cash inflow (revenues). 2. Compute cash outflow (expenses). 3. Compute the net cash flow before tax. 4. Determine the tax cost or tax savings. Caution: Is the taxable income or the taxable loss the same as the net cash flow before tax? Why or when would it be different?
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1. Compute net cash flow after tax. 2.
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This note was uploaded on 05/19/2008 for the course ACCT 3531 taught by Professor Ryan during the Spring '08 term at Temple.

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Chap.3-4.Planning131__revised_Sp07 - Tax Planning Tax Cost...

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