Tax Planning and Strategy Flashcards

Accelerating deductions and deferring income is most beneficial when:

Answer: Tax rates are expected to increase in future years

Accelerating deductions into the current year and deferring income to the future is most effective when future tax rates are anticipated to rise.

Which type of depreciation recapture applies to gains from selling depreciable real property attributable to prior Section 1250 depreciation?

Answer: Unrecaptured Section 1250 gain taxed at a maximum 25% rate

Unrecaptured Section 1250 gain from selling depreciable real property is taxed at a maximum rate of 25%, not the standard 15%/20% long-term capital gains rates.

Which strategy involves gifting assets expected to appreciate significantly to reduce future estate taxes?

Answer: Annual gifting and leveraged gifting techniques

Transferring appreciating assets out of the estate through annual exclusion gifts and other gifting strategies reduces the taxable estate by removing future appreciation.

Installment sale treatment under IRC Section 453 allows sellers to:

Answer: Spread gain recognition over the payment period as principal is received

The installment method allows sellers to recognize gain proportionally as payments are received, spreading the tax liability over the payment period.

The economic substance doctrine is used by the IRS to challenge transactions that:

Answer: Lack business purpose or economic substance beyond tax benefits

The economic substance doctrine disallows tax benefits from transactions that have no genuine economic substance or legitimate non-tax business purpose.

Which planning strategy is used by high-income taxpayers to shift business income to a lower-bracket child through employment in a family business?

Answer: Family employment strategy

Paying a child a reasonable wage for actual services rendered in a family business shifts earned income to the child's lower tax bracket.