Question

If tax rates are decreasing, a general planning strategy to consider would be the following and...

  1. If tax rates are decreasing, a general planning strategy to consider would be the following and explain why:
  1. taxpayers should accelerate income
  2. taxpayers should defer deductions
  3. taxpayers should defer income
  4. taxpayers should defer deductions and accelerate income
  5. None of the choices are correct
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Answer #1

If the tax rates are decreasing then the Company will pay lower taxes in the future. If the same is accrued now the Company will pay higher taxes and if at later date then the Company will pay lower taxes.

Hence as a general planning strategy the Company should defer income pay lower taxes in coming time.

Option (a) is incorrect since if the Company will accelerate then the Company might be ending by paying higher tax now. Forecast is lower tax rate ahead.

Option (b) Deferring deductions is not a viable option since Company will end paying higher taxes now.

Option (c) Income should deferred since the forecast is lower tax rates ahead. Tax savings will be their in this strategy. Thus option (c) is correct.

Option (d) No both can't be done as explained above.

Option (e) Not correct since Option (c) is right.

Thus the correct option will be (c). The Company should defer the income.

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