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    If we reduce expected tax payments, we should do it?

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    True or False: "This transaction will reduce expected tax payments: therefore, we should do it!" Briefly explain your answer.

    "For numeric solutions, provide full documentation of the process used to reach the solution. For problem analysis, use information from the Internet to perform analysis, incorporating critical thinking and real-life perspectives.
    Please include a professional presentation of your analysis and results. Please use applicable tools, such as tables, graphs, diagrams, and commentary.

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    Solution Preview

    This is generally false with a few noted exceptions.

    General rule. Reducing tax payments is never a reason by itself. The reason is that reducing tax payments can only occur two ways: increasing deductions or reducing taxable receipts. In order to reduce receipts, you have to have less of them and so you are avoiding taxes by avoiding income transactions. Let's say that you didn't make a sale of $2,000. Yes, your taxes are down but so are you sales! So, while your expected tax payments are down, you are not better off. See the illustration below:

    ........................No Tax Avoid Avoid Receipts
    Taxable receipts $ 100,000 $ 98,000
    Tax deductions $ 75,000 $ 75,000
    Taxable income $ 25,000 $ 23,000
    Taxes due ....... $ 7,500 $ 6,900
    tax rate assumed: 30%

    transaction impact $ (2,000)
    tax impact $ 600
    net impact $ (1,400)

    Let's work on the increasing deductions angle. You have to pay for something to get a deduction. So, you can reduce taxes by paying for something but this also does not ...

    Solution Summary

    Your tutorial is 587 words with three scholarly references. The discussion agrees with the topic and gives numeric examples. Three exceptions are discussed (changing timing, tax deferred exchanges, and transfer pricing).

    $2.19

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