Blog

David Rose gives his mother Moira $10,000 to spend on clothing and wigs. David’s marginal tax rate is 32% and Moira’s marginal tax rate is 10%. David owns a store and needs assistance. How much would employing Moira at the store and paying her enough for her to have $10,000 left after tax save the family overall in tax (ignore payroll and employment tax)?

Mutt Schitt, a single taxpayer, has received gross income of $220,000 through November 2020.  Mutt is deciding whether to accept one of two engagements for December.  Engagement 1 will generate $80,000 of revenue at a cost of $15,000 which is deductible for AGI.  In contrast, engagement 2 will generate $80,000 of revenue at a cost of $10,000, which is deductible as an itemized deduction.  Mutt has no other itemized deductions that those from Engagement 2. A. Identify which engagement Mutt should choose. (2 points) B. State the tax savings (i.e. difference in after-tax income). (8 points) C. What type of tax planning strategy is this? (2 points)      

Roland reported lower wages on his tax return than were reported on his W-2. Which audit program will likely catch Roland’s “mistake”?  

Which of the following statements about tax rate structures is incorrect?

Johnny Rose has a high tax rate and sells land to his daughter Alexis who has a low tax rate.  Alexis then leases the property back to her father Johnny for him to use in his business.  Which type of tax planning strategy is employed?    

Jocelyn and Roland file a joint return. Jocelyn works and receives income during the year but Roland does not. If the couple files a married filing joint tax return, Roland is not responsible for paying any taxes due if Jocelyn is unable to pay the taxes. 

Twyla is unmarried and has no children. Twyla’s mother, who lives in an apartment across town, earns $5,000 which she uses to buy groceries and get her hair done. Twyla pays for her mother’s rent ($10,000) and health insurance ($5,000). Which is the most advantageous filing status available to Twyla?

Patrick has the choice to invest in a town of Schitt’s Creek bond (i.e. municipal bond) at 6% or Rose Video Inc. at 8%. What marginal tax rate will make Patrick indifferent between investing in the two bonds? 

Bonus (1 point): Give an example of an unintended consequence of a tax policy discussed in class.     Bonus (1 point): Briefly describe (or name) a court case, revenue ruling, regulation or treaty discussed in class.

The tax authority has changed the tax rate structure such that all income is taxed at 35%. Ted decides to work harder such that his after-tax income remains the same. Assuming prior to the law change his pre-tax income was 175,000 and his tax rate on all income was 25%, how much must he earn?