Problem Set #2 - Daniel Paterson ACIS 3314 10139 Problem...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Daniel Paterson ACIS 3314 - 10139 2/10/2011 Problem Set #2 1. The goal of tax planning is not to minimize taxes but to maximize the taxpayer’s after-tax wealth while achieving the taxpayer’s nontax goals. Maximizing after tax wealth and minimizing taxes are not the same because maximizing after tax wealth requires us to consider both the tax and nontax costs and benefits of alternative transactions, where as tax minimization focuses solely on the single cost of taxes. 10. A dollar today is more valuable than a dollar in the future because according to the principal of time value of money an investor can earn a positive after-tax rate of return on that dollar. 12. The two factors that increase the difference between present and future value are the discount factor which is derived from the expected after-tax return used to calculate the present value of the future cash inflow or outflow and the period. 13. In order for income shifting to be a viable tax strategic you must follow the assignment of income doctrine which requires income to be taxed at the marginal rate of the taxpayer who actually earned the income. For investment income, the “fruit and tree” analogy is used which states for the owner to avoid being taxed on the investment income he would have to transfer the whole investment to his child. Also, the IRS highly scrutinizes related-party transactions when an attempt is made to transfer wealth to a child with a lower marginal tax rate. Also, a sole proprietorship can become incorporated in order to deduct compensation expense or the business owner can rent property to the corporation in order to shift income. Finally, shifting taxes to different jurisdictions with lower tax rates is a highly scrutinized way of income shifting. 16. The key factor in shifting income from business to an owner is for the business owner to create a separate taxable corporation for their business. By using this strategy, the business profits are taxed at the corporate rate instead of the owner’s individual rate. In order to shift income from the corporation to the owner, the corporation must create a tax deduction for itself.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern