Question 4

Jose is trying to decide whether to pay a tax-deductible expense in 2019 or in 2020. Which one of the following items will be most useful to Jose in calculating the tax benefit of the tax deduction in each year (i.e. how much his tax liability will be reduced each year as a result of the deduction)?

a)Jose's average tax rate

b)Jose's regressive tax rate

c)Jose's marginal tax rate

d)Jose's effective tax rate

e)None of the above

Question 5

Same facts as the previous question. If Jose thinks that overall tax rates and his marginal tax bracket are going to increase substantially in 2020, then which of the following is most accurate? Assume Jose is able to deduct the expense in the year paid.

a)Jose should pay the expense in 2019 so that he gets the deduction in 2019. This is an example of a timing strategy.

b)Jose should delay the expense until 2020 so that he can defer the deduction until 2020. This is an example of a timing strategy

c)Jose should pay the expense in 2019 so that he gets the deduction in 2019. This is an example of a conversion strategy.

d)Jose should delay the expense until 2020 so that he can defer the deduction until 2020 This is an example of a conversion strategy.

e)None of the above

Question 6

If Jose thought that overall tax rates and his marginal tax bracket would be the same for 2019 and 2020, then:

a)Jose would want to pay the expense in 2019

b)Jose would want to pay the expense in 2020

c)It wouldn't matter if Jose pays the expense in 2019 or 2020

Question 7

Arjun, single, has an average tax rate of 10.8%, an effective tax rate of 9.9%, and a marginal tax rate of 22% in 2018. If Arjun generates an additional $1,000 tax deduction which lowers his taxable income by $1,000, what is Arjun's federal income tax savings as a result of the $1,000 deduction?