16; EX 3; P 1 - 1.1 The Basics of Tax Planning • The IRS: An ...

Chapter 1:

Correlation of Test Bank questions to textbook Sections and Subsections

1.1 The Basics of Tax Planning

• The IRS: An Uninvited Third Party – SA 1

• The Goal of Tax Planning – MC 1 – 2, BE 1, BE 2, SA 2 • Considering Tax Costs and Non-Tax Costs – MC 3 – 6 ; BE 1 – 6

1.2 Individual Income Tax Formula MC 7 – 15; BE 7 - 9; SA 3- 7

1.3 Tax Compliance vs. Tax Planning MC 17; SA 8 – 9 • Closed vs. Open Transactions MC 16, 18; SA 10, 11 • Marginal Tax Rates, Average Tax Rates, and Effective Tax Rates MC 19 – 23; BE 10

– 16; EX 3; P 1

• Tax Planning Opportunities MC 24 – 28; EX 4; SA 12

1.4 Tax Avoidance vs. Tax Evasion • Tax Evasion MC 29, 31; SA 13, 14 • Tax Ethics MC 30

1.5 Tax Rules vs. GAAP MC 32 – 39; ES 1

1.6 Goals of Tax Policymakers MC 40 – 47; EX 5, 6; SA 15 – 18 • Raise Revenue • Social Objectives • Economic Objectives • Equity Objectives

1.7 Other Taxes Paid by Individuals SA 19, 21, 22 • Other federal taxes MC 47 – 49 • State and local taxes MC 50 • Implicit taxes SA 20

1.8 Professional Taxation as a Career SA 23, 24, 25; MC 51 • The Role of a Tax Professional • Characteristics of Successful Tax Professionals

(Fundamentals of Taxation for Individuals A Practical Approach, 2024 Edition By Gregory Carnes, Suzanne Youngberg) (Test Bank, For Complete File, Download link at the end of this File) 1 / 4

Package Title: Chapter 1 Test Bank

Course Title: Carnes Taxation for Individuals 1e

Chapter Number: 1

Multiple Choice 1) Which of the following is false about tax planning?

a) The appropriate goal for tax planning is to maximize after-tax income

b) The appropriate goal for tax planning is to minimize a taxpayer’s tax liability for the year

c) Once a taxpayer understands the tax consequences of a particular transaction, they can move on

to the tax planning stage

d) Tax evasion is not a tax planning strategy

Answer: b

Title: Test Bank Multiple Choice Question 1

Difficulty: Easy

Learning Objective 1: LO 1.1

Standard 1: AACSB || Knowledge

Standard 2: AICPA || Accounting Competencies

Standard 3: Bloom’s || Knowledge

Section Reference 1: Sec. 1.1

Solution: Minimizing a taxpayer’s liability is not the appropriate goal for tax planning because if that were the goal, then the ultimate success would be to reduce a taxpayer’s tax liability to zero—actually an easy goal to meet. If a taxpayer has no income for the year, then there would be no tax liability, and you will have minimized their taxes. But your client will also be a very poor and hungry person, so this cannot be the proper goal.

Time on task: 5 min

2) Jessica has received several job offers from various accounting firms located in 4 different states. She has performed an analysis to determine her income, her non-income tax costs (e.g.cost of living, etc.) and income tax. Jessica is trying to make a decision on which offer to accept, and she has asked for your advice. Based on the appropriate goal of tax planning, which of the following states would you advise Jessica to choose?

Gross Wages Non-Income Tax Costs Income Tax California 120,000 52,000 24,000 New York 100,000 37,000 20,000 Virginia 70,000 10,800 10,500 Texas 50,000 6,000 5,000

a) Texas

b) California 2 / 4

c) Virginia

d) New York

Answer: c

Title: Test Bank Multiple Choice Question 2

Difficulty: Medium

Learning Objective 1: LO 1.1

Standard 1: AACSB || Analytic

Standard 2: AICPA || Accounting Competencies

Standard 3: Bloom’s || Application

Section Reference 1: Sec. 1.1

Solution: The appropriate goal for tax planning is to maximize after-tax income. After-tax income is net income after reducing revenue for all expenses, including federal income taxes.See table below for calculation of after-tax income for each state. With that in mind, you should advise Jessica to choose Virginia because doing so maximizes her after-tax income. The state with the lowest income tax (i.e., Texas) is not the right answer because minimizing a taxpayer’s liability is not the appropriate goal for tax planning because if that were the goal, then the ultimate success would be to reduce a taxpayer’s tax liability to zero—an easy goal to meet. If a taxpayer has no income for the year, then there would be no tax liability, and you will have minimized their taxes. But your client will also be a very poor and hungry person, so this cannot be the proper goal.

Gross Wages (A) Non-Income Tax Costs (B) Income Tax (C) After-Tax Income

(D) = (A) – (B) –

(C) California

120,000

52,000

24,000

44,000

New York

100,000

37,000

20,000

43,000

Virginia

70,000

10,800

10,500

48,700

Texas

50,000 6,000 5,000

39,000

Time on task: 8 min

3) Which of the following is not correct regarding tax and non-tax costs?

a) Both tax and non-tax costs must be considered when making financial and investment

decisions.

b) Tax costs include any type of tax paid to a local, state, federal, or foreign government.

c) Non-tax costs are all costs other than tax costs.

d) Effective tax planning requires prioritizing tax costs.

Answer: d 3 / 4

Title: Test Bank Multiple Choice Question 3

Difficulty: Easy

Learning Objective 1: LO 1.1

Standard 1: AACSB || Knowledge

Standard 2: AICPA || Accounting Competencies

Standard 3: Bloom’s || Knowledge

Section Reference 1: Sec. 1.1

Solution: Effective tax planning requires consideration of both tax and non-tax costs.

Time on task: 5 min

4) Samson’s wages are $100,000. He lives in Maryland and his expenses include $25,000 rent, $12,000 other living expenses, $27,000 income tax, $6,200 payroll tax and $5,500 property tax.What are Samson’s tax costs?

• $27,000
• $33,200
• $61,300
• $38,700

Answer: d

Title: Test Bank Multiple Choice Question 4

Difficulty: Easy

Learning Objective 1: LO 1.1

Standard 1: AACSB || Analytic

Standard 2: AICPA || Accounting Competencies

Standard 3: Bloom’s || Application

Section Reference 1: Sec. 1.1

Solution: $38,700 = $27,000 + $6,200 + $5,500. Tax costs include any type of tax paid to a local, state, federal, or foreign government.

Time on task: 5 min

5) Samson’s wages are $100,000. He lives in Maryland and his expenses include $25,000 mortgage interest, $12,000 other living expenses, $27,000 income tax, $6,200 payroll tax and $5,500 property tax. What is Samson’s non-tax costs?

• $37,000
• $12,000
• $61,300
• $38,700

Answer: a

Title: Test Bank Multiple Choice Question 5

Difficulty: Easy

Learning Objective 1: LO 1.1

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