MCGRAW-HILL'S TAX.OF INDIV.+BUS.2020
20th Edition
ISBN: 9781259969614
Author: SPILKER
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 3, Problem 25DQ
a.
To determine
Rank all the investment options available to L, as given in order of their after-tax returns (higher to lower) with the assumption that all have similar before-tax returns.
b.
To determine
Determine the investments that employ the deferral and/or conversion tax planning strategy.
c.
To determine
Explain the way the time period of the investment affect the returns from these alternatives.
d.
To determine
Explain the difference among the alternative investments in context to their non-tax characteristics.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
David has the option to invest in one of the followingÂ
Town of Elmdale bond that pays 6% interest annually
Town of Schitt's Creek bond that pays 6.5% interest annually
Prada corporate bond that pays 7% interest annually
Gucci corporate bond that pays 6% interest annually
 David anticipates that his marginal rate will be 10%. Which investment should he choose from tax perspective?
a.Group of answer choices
b.Prada bond
c.Elmdale bond
d.Schitt's Creek bond
e. Gucci bond
A taxpayer is trying to decide between two investments: a State of Vermont bond that will pay 3.20% interest annually or preferred corporate stock that will pay 3.75% dividends annually. What tax-related factors should the taxpayer consider in making their investment decision?
Hui is currently considering investing in municipal bonds that earn 8.55 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 11.40 percent.
Required:
If Hui's tax rate is 22 percent, which bond should he choose?
Which bond should he choose if his tax rate is 32 percent?
At what tax rate would he be indifferent between the bonds?
What strategy is this decision based upon?
Chapter 3 Solutions
MCGRAW-HILL'S TAX.OF INDIV.+BUS.2020
Ch. 3 - 1. The goal of tax planning is to minimize taxes....Ch. 3 - Prob. 2DQCh. 3 - In this chapter we discussed three basic tax...Ch. 3 - What are the two basic timing strategies? What is...Ch. 3 - Prob. 5DQCh. 3 - What are some common examples of the timing...Ch. 3 - What factors increase the benefits of accelerating...Ch. 3 - How do changing tax rates affect the timing...Ch. 3 - Prob. 9DQCh. 3 - Prob. 10DQ
Ch. 3 - Prob. 11DQCh. 3 - What two factors increase the difference between...Ch. 3 - What factors have to be present for income...Ch. 3 - Prob. 14DQCh. 3 - Prob. 15DQCh. 3 - Prob. 16DQCh. 3 - Prob. 17DQCh. 3 - Prob. 18DQCh. 3 - Prob. 19DQCh. 3 - Explain how implicit taxes may limit the benefits...Ch. 3 - Prob. 21DQCh. 3 - Do after-tax rates of return for investments in...Ch. 3 - Prob. 23DQCh. 3 - Prob. 24DQCh. 3 - Prob. 25DQCh. 3 - What is an implicit tax and how does it affect a...Ch. 3 - Several judicial doctrines limit basic tax...Ch. 3 - What is the constructive receipt doctrine? What...Ch. 3 - Prob. 29DQCh. 3 - Relative to arms length transactions, why do...Ch. 3 - Prob. 31DQCh. 3 - Prob. 32DQCh. 3 - Prob. 33DQCh. 3 - Prob. 34DQCh. 3 - Yong recently paid his accountant 10,000 for...Ch. 3 - Billups, a physician and cash-method taxpayer, is...Ch. 3 - Prob. 37PCh. 3 - Prob. 38PCh. 3 - Prob. 39PCh. 3 - Prob. 40PCh. 3 - Prob. 41PCh. 3 - Prob. 42PCh. 3 - Prob. 43PCh. 3 - Prob. 44PCh. 3 - Prob. 45PCh. 3 - Prob. 46PCh. 3 - Prob. 47PCh. 3 - Prob. 48PCh. 3 - Prob. 49PCh. 3 - Prob. 50PCh. 3 - Prob. 51PCh. 3 - Prob. 52PCh. 3 - Orie and Jane, husband and wife, operate a sole...Ch. 3 - Prob. 54PCh. 3 - Prob. 55PCh. 3 - Prob. 56PCh. 3 - Prob. 57PCh. 3 - Prob. 58PCh. 3 - Prob. 59PCh. 3 - Prob. 60PCh. 3 - Prob. 61PCh. 3 - Prob. 62PCh. 3 - Prob. 63PCh. 3 - Prob. 64PCh. 3 - Prob. 65P
Knowledge Booster
Similar questions
- Sama is considering investing in Tesla securities.  Sama has the option to invest in preferred stock or bonds.  Sama decided to purchase stock rather than bonds. The return on the stock that Sama sold in 2020 was $10,000 including qualified dividends and capital gain. Sama's ordinary tax rate is 35%. Is this an example of “timing?”  Explain.arrow_forwardwhich is the correct answer and why? I think it's c. Relative to a passive investor who holds securities for a long time, all of the following statements about an active investor who frequently buys and sells securities are correct EXCEPT ____. Group of answer choices  a. The active investor must pay greater total annual commission to security brokers b. The active investor must pay greater total annual tax to the government c. The active investor must earn greater net annual investment return, where net return is defines as return net of various transaction costs, fees and taxes d. The active investor must pay greater total annual bid-ask spread to security dealersarrow_forwardDana intends to invest $60,000 in either a Treasury bond or a corporate bond. The Treasury bond yields 5 percent before tax and the corporate bond yields 6 percent before tax. Required: a-1. Assuming Dana’s federal marginal rate is 24 percent and her marginal state rate is 5 percent, which of the two options should she choose? Assume that Dana itemizes deductions. a-2. How much interest after-tax would Dana earn by investing in the corporate bond? Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount. b-1. If she were to move to another state where her marginal state rate would be 10 percent, which of the two options should she choose? Assume that Dana itemizes deductions. b-2. How much interest after-tax would Dana earn by investing in the corporate bond as per requirement b-1? Note: Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.arrow_forward
- Relative to a passive investor who holds securities for a long time, all of the following statements about an active investor who frequently buys and sells securities are correct EXCEPT ____. Group of answer choices a:The active investor must pay greater total annual commission to security brokers b: The active investor must pay greater total annual tax to the government c: The active investor must earn greater net annual investment return, where net return is defines as return net of various transaction costs, fees and taxes d: The active investor must pay greater total annual bid-ask spread to security dealersarrow_forwardHarper is considering three alternative investments of $10,000. Assume that the taxpayer is in the 24% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. The selected investment will be liquidated at the end of five years. The alternatives are: A taxable corporate bond yielding 5.333% before tax and the interest can be reinvested at 5.333% before tax. A Series EE bond that will have a maturity value of $12,200 (a 4% before-tax rate of return). Land that will increase in value. The gain on the land is classified and taxed as a long-term capital gain. The income from the bonds is taxed as ordinary income. How much must the land increase in value to yield a greater after-tax return than either of the bonds? Below are the factors for the compound amount of $1 and compound value of annuity payments at the end of five years: Interest Rate $1 Compoundedfor Five Years $1 Annuity Compoundedfor Five Years 4%   1.2167   5.4163   5%…arrow_forwardEffective tax planning. Denise Hughes reports the following data from her 2018 tax return. Analyze the data and suggest tax planning ideas that she should consider. Note: The interest income is from a bank savings account earning 1%. The dividends are from a stock paying 3 percent dividends.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT