Econ 138A Ch. 4 (Maxims Of Income Tax Planning)

Front 1

What is tax planning?

Back 1

The structuring of transactions to reduce tax costs or increase tax savings to maximize net present value.

Front 2

What is tax avoidance?

Back 2

The implementation of legal strategies for reducing taxes.

Front 3

What is tax evasion?

Back 3

The willful and deliberate attempt to defraud the government by understanding a tax liability through illegal means.

Front 4

What are the four variables common to all transactions?

Back 4

The entity variable: Which entity undertakes the transaction?

The time period variable: During which tax year or years does the transaction occur.

The jurisdiction variable: In which tax jurisdiction does the transaction occur?

The character variable: What is the tax character of the income from the transaction?

Front 5

What is the first income tax planning maxim?

Back 5

Tax costs decrease (and cash flows increase) when income is generated by an entity subject to a low tax rate.

Front 6

What is deduction shifting?

Back 6

Entities with different marginal rates can save tax not only by shifting income but also by shifting deductible expenses.

Front 7

What is the assignment of income doctrine?

Back 7

Income must be taxed to the entity that renders the service or owns the capital with respect to which the income is paid.

Front 8

What is tax planning maxim two?

Back 8

In present value terms, tax costs decrease (and cash flows increase) when a tax is deferred until a later taxable year.

Front 9

What is ordinary income?

Back 9

Any income that is not capital gain. Ordinary income is taxed at the regular individual or corporate tax rates.

Front 10

What is capital gain/loss?

Back 10

Any asset that does not fall into one of eight statutory categories of noncapital assets. Most business assets (AR, supplies, inventory, tangible personalty, realty, and purchased intangibles) are noncapital assets.