1.Which of the following statements about conversion of income is correct? conve
ID: 2759579 • Letter: 1
Question
1.Which of the following statements about conversion of income is correct?
converting ordinary income into capital gain is a beneficial tax planning strategy
converting capital gain income into ordinary income is a beneficial tax planning strategy
converting qualifying dividends into interest income is a beneficial tax planning strategy
holding assets that will generate a capital gain inside a retirement plan is a beneficial tax planning strategy
2. Which of the following statements is NOT a true statement regarding long-term capital assets?
capital assets that are held for more than one year are treated as long-term
no distinction is made between capital losses and ordinary losses
with few exceptions, the maximum capital gains tax rate is 15%
the benefit of holding a capital asset long enough to garner long-term capital gain treatment must be weighed against the financial risk associated with a possible decline in value during the holding period
3. Which of the following statements about the taxation of dividends is correct?
all dividends are taxed at the same rate as applicable to capital gains
dividends paid by credit unions and mutual insurance companies qualify for the lower tax rate
qualifying dividends are taxed at a maximum 15% rate
d. there is no tax benefit to changing some of an individual's funds from a lower-yielding fixed income investment into a dividend-paying stock
4. Which of the following is an advantage of making an IRC Section 83(b) election with respect to restricted stock?
an 83(b) election can be made any time within the tax year of the transfer of shares from the company to the employee
if the stock is forfeited, the compensation recognized and the taxes paid are deductible as losses
any future appreciation would be taxed as capital gain instead of taxable compensation
d. the employee does not receive any cash at the time of the stock award to pay the tax on the compensation recognized under the election
5.The maximum alternative minimum tax rate for individuals is:
less than the maximum regular federal income tax rate for individuals
equal to the maximum regular federal income tax rate for individuals
greater than the maximum regular federal income tax rate for individuals
d. going to decrease each year by 1% until it reaches 20% in 2010
6. How is alternative minimum taxable income (AMTI) for individuals computed?
AMTI = taxable income + adjustments + preferences - exemptions
AMTI = taxable income - adjustments + preferences - exemptions
AMTI = taxable income +/- adjustments + preferences - exemption
d. AMTI = taxable income +/- adjustments - preferences - exemptions
7. Which of the following statements regarding the calculation of alternative minimum taxable income (AMTI) for corporations versus the calculation of AMTI for individuals is accurate?
AMTI is calculated the same for both corporations and individuals
an additional step is required for corporations based on their adjusted current earnings
the exemption amount for corporations is not subject to phaseout to phaseout while the exemption amounts for individuals are
thethere is no adjustments to taxable income for corporations, only preferences
a.converting ordinary income into capital gain is a beneficial tax planning strategy
b.converting capital gain income into ordinary income is a beneficial tax planning strategy
c.converting qualifying dividends into interest income is a beneficial tax planning strategy
d.holding assets that will generate a capital gain inside a retirement plan is a beneficial tax planning strategy
2. Which of the following statements is NOT a true statement regarding long-term capital assets?
a.capital assets that are held for more than one year are treated as long-term
b.no distinction is made between capital losses and ordinary losses
c.with few exceptions, the maximum capital gains tax rate is 15%
the benefit of holding a capital asset long enough to garner long-term capital gain treatment must be weighed against the financial risk associated with a possible decline in value during the holding period
3. Which of the following statements about the taxation of dividends is correct?
a.all dividends are taxed at the same rate as applicable to capital gains
b.dividends paid by credit unions and mutual insurance companies qualify for the lower tax rate
c.qualifying dividends are taxed at a maximum 15% rate
d. there is no tax benefit to changing some of an individual's funds from a lower-yielding fixed income investment into a dividend-paying stock
4. Which of the following is an advantage of making an IRC Section 83(b) election with respect to restricted stock?
a.an 83(b) election can be made any time within the tax year of the transfer of shares from the company to the employee
b.if the stock is forfeited, the compensation recognized and the taxes paid are deductible as losses
c.any future appreciation would be taxed as capital gain instead of taxable compensation
d. the employee does not receive any cash at the time of the stock award to pay the tax on the compensation recognized under the election
5.The maximum alternative minimum tax rate for individuals is:
a.less than the maximum regular federal income tax rate for individuals
b.equal to the maximum regular federal income tax rate for individuals
c.greater than the maximum regular federal income tax rate for individuals
d. going to decrease each year by 1% until it reaches 20% in 2010
6. How is alternative minimum taxable income (AMTI) for individuals computed?
a.AMTI = taxable income + adjustments + preferences - exemptions
b.AMTI = taxable income - adjustments + preferences - exemptions
c.AMTI = taxable income +/- adjustments + preferences - exemption
.d. AMTI = taxable income +/- adjustments - preferences - exemptions
7. Which of the following statements regarding the calculation of alternative minimum taxable income (AMTI) for corporations versus the calculation of AMTI for individuals is accurate?
a.AMTI is calculated the same for both corporations and individuals
b.an additional step is required for corporations based on their adjusted current earnings
c.the exemption amount for corporations is not subject to phaseout to phaseout while the exemption amounts for individuals are
d.thethere is no adjustments to taxable income for corporations, only preferences
Explanation / Answer
Conversion of Income:
Converting Ordinary income into capital gain is a beneficial tax planning strategy is the correct statement. Hence, the Ordinary income will come from ordinary assets. Ordinary assets are like inventories, accounts receivables and notes receivables from the sale of inventory or services etc. Whereas capital gains will come from capital assets. Capital assets are generally investments like stocks and bonds etc.
Here the capital gains are taxed at lower rates than the ordinary income tax rates. Therefore, comparing the gain from Ordinary assets is very beneficial than the gain from Capital assets.
Therefore, (a) Converting ordinary income into capital gain is a beneficial tax planning strategy is the correct statement.
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