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Test Bank For
Fundamentals of Taxation for Individuals A Practical
Approach, 2024 Edition Gregory A. Carnes, Suzanne
Youngberg
Chapter 1-18
Chapter 1 The Professional Practice of Taxation
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
Explanation: 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
1
,minimized their taxes. But your client will also be a very
poor and hungry person, so this cannot be the proper
goal.
Diff: 1
Learning Objective: LO 1.1
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.1
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 Non-Income Income Tax
Wages Tax Costs
California 120,000 52,000 24,000
New 100,000 37,000 20,000
York
Virginia 70,000 10,800 10,500
2
,Texas 50,000 6,000 5,000
A) Texas
B) California
C) Virginia
D) New York
Answer: C
Explanation: 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 Non- After-
Wages Income Tax
3
, (A) Tax Income Income
Costs Tax (C) (D) = (A)
(B) - (B) -
(C)
California 20,000 52,000 24,000 44,000
New 100,000 37,000 20,000 43,000
York
Virginia 70,000 10,800 10,500 48,700
Texas 50,000 6,000 5,000 39,000
Diff: 2
Learning Objective: LO 1.1
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.1
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.
4
Test Bank For
Fundamentals of Taxation for Individuals A Practical
Approach, 2024 Edition Gregory A. Carnes, Suzanne
Youngberg
Chapter 1-18
Chapter 1 The Professional Practice of Taxation
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
Explanation: 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
1
,minimized their taxes. But your client will also be a very
poor and hungry person, so this cannot be the proper
goal.
Diff: 1
Learning Objective: LO 1.1
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.1
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 Non-Income Income Tax
Wages Tax Costs
California 120,000 52,000 24,000
New 100,000 37,000 20,000
York
Virginia 70,000 10,800 10,500
2
,Texas 50,000 6,000 5,000
A) Texas
B) California
C) Virginia
D) New York
Answer: C
Explanation: 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 Non- After-
Wages Income Tax
3
, (A) Tax Income Income
Costs Tax (C) (D) = (A)
(B) - (B) -
(C)
California 20,000 52,000 24,000 44,000
New 100,000 37,000 20,000 43,000
York
Virginia 70,000 10,800 10,500 48,700
Texas 50,000 6,000 5,000 39,000
Diff: 2
Learning Objective: LO 1.1
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.1
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.
4
