Which investment opportunity you would recommend.

1. What the conversion tax planning strategy is, and which of these investments employ this strategy. words 300 +

2. How implicit taxes may limit the benefits of the conversion strategy. words 300 +

Kate and Sam Smith investment opportunities Here are the three different investment opportunities you have identified for the Smiths, all with the same amount of risk 1. Taxable corporate bonds that pay 4.75 percent interest annually. 2. A high-dividend stock that pays 4 percent dividends annually but has no appreciation potential. 3. Tax exempt municipal bonds that pay 3.5 percent annually. Kate and Sam have a marginal tax rate of 30 percent (capital gains rate of 15 percent) Investment Choice After-Tax Return Computation 1. Corporate Bond 200000 4.75% (1-0.3) 6650 2. High-dividend stock 200,000 4% (1-0.15) 6800 3. Municipal bond 200,000 3.5% 7000 Here are the three basic tax planning strategies, and the features of taxation each of them exploits: The three basis tax planing strategies are Timing, Income Shifting, Conversion Strategies. Timing, just like in the case of time value of money even timing of tax beign levied is to be considered. We need to decide whether to pay taxes today or tomorrow. if tax rates are constant, pay more tax now and less in coming years and if tax rates are increasing we must decide to pay more taxes now and if they are decrease pay more taxes in future. Income Shifting, We can shigt the income form a high tax paying person to a low tax paying person. from high tax paying parent to low tax paying childer and from business to business owner from one country to another country Coversion Startegies, Involves adjusting specific activities. Ex. between wages and dividends or between