Multiple Choice
Which of the following is a primary function of commercial bank loans?
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1. Introduction to Accounting
Types of Accounting
Multiple Choice
Which of the following taxpayers is using an income shifting tax planning strategy?
A
A corporation that accelerates deductible expenses into the current year
B
An individual who claims the standard deduction instead of itemizing
C
A parent who transfers investment income to their child in a lower tax bracket
D
A taxpayer who invests in tax-exempt municipal bonds
Verified step by step guidance1
Understand the concept of income shifting: Income shifting is a tax planning strategy where income is transferred from a taxpayer in a higher tax bracket to another taxpayer in a lower tax bracket to reduce the overall tax liability.
Analyze the options provided: Evaluate each option to determine whether it involves transferring income to someone in a lower tax bracket.
Option 1: A corporation accelerating deductible expenses into the current year. This is a timing strategy, not income shifting, as it does not involve transferring income to another taxpayer.
Option 2: An individual claiming the standard deduction instead of itemizing. This is a choice of deduction method, not income shifting, as it does not involve transferring income to another taxpayer.
Option 3: A parent transferring investment income to their child in a lower tax bracket. This is an example of income shifting because the parent is transferring income to someone (the child) who is in a lower tax bracket, thereby reducing the overall tax liability.
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