6.Rachel, who is in the 35% marginal tax bracket, is considering purchasing an annuity that will pay her $10,000 per year for the remainder of her life. Her life expectancy is 15 years. The cost of the annuity is $97,120, and the cost is calculated to yield her an expected 6% return on her in-vestment. As an alternative, Rachel could place the $97,120 in a savings account yielding 6% and she could withdraw $10,000 each year for 15 years (reducing the value of the account to zero at the end of 15 years). How might the tax laws applicable to annuities affect Rachel’s decision?
PTS:1REF:p. 4-27 to 4-307.In the case of a corporation’s zero interest loan to a shareholder-employee, why would the share-holder prefer that the loan be classified as a corporation to shareholder loan rather than an em-ployer-employee loan?
PTS:1REF:Concept Summary 4-28.Under the formula for taxing Social Security benefits, low income taxpayers are not required to include any of the Social Security benefits in gross income. But as income increases, 50% of the Social Security benefits may be included in gross income. Further increases in income will cause as much as 85% of the Social Security benefits being subject to tax. Does this mean that the taxa-tion of Social Security benefits is more or less progressive than the taxation of other types of in-come?