Question

For each of the following scenarios, indicate which of the four basic tax planning variables (entity, character, time period, jurisdiction) impacts after-tax value. Note that more than one variable may apply to any scenario; identify all that are relevant. (For all requirements, You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) Required: a. Aloha Corporation is considering building a new manufacturing facility in either State U or State P. State U has a 10 percent state income tax rate. State P has a 15 percent state income tax rate but offers a tax holiday for new business investment that would exempt up to $250,000 of Aloha’s earnings from state income tax for the first five years of operations in State P. check all that apply 1 Entity variable unanswered Character variable unanswered Time period variable unanswered Jurisdiction variable unanswered b. Mary wishes to help her nephew, Gill, pay his

college tuition. Instead of giving Gill cash, Mary gives him bonds earning $10,000 annual interest income. Mary’s marginal tax rate is 35 percent, and Gill’s marginal tax rate is 12 percent. check all that apply 2 Entity variable unanswered Character variable unanswered Time period variable unanswered Jurisdiction variable unanswered c. Congress has recently enacted a decrease in corporate tax rates that will take effect at the beginning of next year. Grant Company, a cash basis taxpayer, is planning to pay expenses prior to year-end in order to maximize its tax savings in the current year. check all that apply 3 Entity variable unanswered Character variable unanswered Time period variable unanswered Jurisdiction variable unanswered d. Will has $50,000 to invest in the stock market. He is considering two alternatives. Stock A pays annual qualifying dividends of 6 percent. Stock B pays no dividends but is expected to increase in value at a rate of 5 percent per year. Will would hold either investment for a minimum of four years. Will’s marginal tax rate on ordinary income is 35 percent. check all that apply 4 Entity variable unanswered Character variable unanswered Time period variable unanswered Jurisdiction variable unanswered

Answer 1

• Answer -

• Answer - a.

Character Variable &

Jurisdiction Variable.

• Answer - b.

Entity Variable.

• Answer - c.

Time Period Variable.

• Answer - d.

Time Period Variable &

Character Variable.

Explanation of each variable for your better understanding :

• Answer - a & d.

Character variable : It is analyses whether the income as Ordinary Income or Capital Gain.

• Answer - a .

Jurisdiction variable : It determines that the tax percentage it varies from state to state and it allows to the tax payers to take advantage from low tax rate.

• Answer - c & d.

Time period variable : Tax payer can make change in payment of tax in a period to tax advantage.

• Answer - b.

Entity variable : Tax payer may be a Corporation or single or married couple filling jointly or head of

household. Tax percentage will verify for every entity.

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