Question

Tim is a lawyer earning a salary of $140,000. He wants to lower his taxes by investing in a qualified small business corporation so as to take advantage of the lifetime capital gains exemption. He intends to borrow $350,000 to invest in the business. What tax advantages will Tim realize by pursuing this strategy?

Question 21 options:

tax conversion

all of the above

tax deferral

tax avoidance

Answer 1

A qualified small business corporation is an active domestic corporation whose gross asset valued at original cost donot exceed $50 million on and immediately after its stock issuance.

Eligible individuals meeting certain criteria are able to receive tax benefits if they invest in qualified small business corporation.

The qualified small business stock allows avoidance of 100% of the capital gain taxes incurred when you sell a stake.

In this case, Tim is investing in qualified small business corporation by borrowing $350,000 so as to take advantage of the lifetime capital gains exemption, this is a clear case of tax avoidance.

Tax avoidance is the use of legal methods to minimize the amount of tax owed by an individual or a business. This is generally acomplished by claiming as many deductions and credits as are allowable.

SUMMARY:

Option (d) Tax avoidance is the correct answer.