For each of the following situations, discuss whether the individual is engaging in tax avoidance or tax
Question:
a. Mr. L performed minor construction work for a number of people who paid him in cash. Because Mr. L knows that there is almost no chance that the IRS could learn of these payments, he reports only half the payments as income on his federal tax return.
b. Mr. P, who is in the 39.6 percent tax bracket, recently had the opportunity to invest $50,000 in a new business that should yield an annual return of at least 17 percent. Rather than invest himself, Mr. P gave $50,000 cash to his son, who then made the investment. The son’s marginal tax rate is only 15 percent.
c. Mrs. Q sold an asset during January. Her $12,000 profit on the sale is ordinary income. After preparing her income tax return for the prior year, Mrs. Q realized that her marginal tax rate for that year was 28 percent. She also realized that her marginal rate for this year will be 39.6 percent. Mrs. Q decides to report the profit on her prior year return to take advantage of the lower tax rate.
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Related Book For
Principles Of Taxation For Business And Investment Planning 2016 Edition
ISBN: 9781259549250
19th Edition
Authors: Sally Jones, Shelley Rhoades Catanach
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