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CHAPTER 3 STUDENT F10 - calculations in a timely manner In...

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CHAPTER 3 TAX PLANNING STRATEGIES AND RELATED LIMITATIONS
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TAX PLANNING
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STRATEGIES TIMING STRATEGIES INCOME-SHIFTING STRATEGIES CONVERSION STRATEGIES
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TIMING TAX STRATEGY WHEN TAX RATES ARE CONSTANT OR DECREASING Taxable income – defer into later tax years Tax deductions – accelerate into earlier years When tax rates are increasing – more complex calculations required to determine optimal strategy
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LIMITATIONS ON TIMING STRATEGIES Non tax considerations Constructive Receipt Doctrine Cash taxpayer must recognize income when: Credited to account Unconditionally available to taxpayer, taxpayer aware of availability, and no restrictions on taxpayer’s control
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Example Kevin, a cash basis taxpayer, received the following from his employer during 2009. Salary $80,000 2008 bonus of 12,000 (received in 2009) The 2008 bonus was not paid until 2009 because Kevin’s employer suffered a computer crash and could not complete the bonus
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Unformatted text preview: calculations in a timely manner. In addition, Kevin earned a 2009 bonus of $1,000 that was to be paid by the end of December 2009. However, in December, Kevin told his employer to delay the payment of the bonus until January 2010, when Kevin plans to retire. What is Kevin’s 2009 income from these events? INCOME-SHIFTING STRATEGIES • Transactions between Related Parties • Shifting across Jurisdictions LIMITATIONS ON INCOME-SHIFTING • Assignment of Income/“Fruit and Tree” – Personal Services – Income from Property • Reasonable amounts? CONVERSION STRATEGIES • Tax law does not treat all types of income or deductions the same ADDITIONAL JUDICIAL DOCTRINES LIMITING TAX PLANNING STATEGIES • Business Purpose Doctrine • Step-Transaction Doctrine • Substance-Over-Form Doctrine...
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