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 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 Wages Non-Income Tax Costs Income Tax California 120,000 52,000 24,000 New York 100,000 37,000 20,000 Virginia 70,000 10,800 10,500 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