Tinsel is considering making a $7,000 investment in a venture that its promoter promises will generate immediate tax benefits for him. Tinsel, who does not anticipate itemizing his deductions, is in the 30% marginal income tax bracket. If the investment is of a type that produces a tax credit of 100% of the amount of the expenditure, by how much will Tinsel’s tax liability decline because of the investment? Options: a.) $3,500 b.) $7,000 c.) $0 d.) $9,100 e.) $2,100

Tinsel is considering making a $7,000 investment in a venture that its promoter promises will generate immediate tax benefits for him. Tinsel, who does not anticipate itemizing his deductions, is in the 30% marginal income tax bracket. If the investment is of a type that produces a tax credit of 100% of the amount of the expenditure, by how much will Tinsel’s tax liability decline because of the investment? Options: a.) $3,500 b.) $7,000 c.) $0 d.) $9,100 e.) $2,100

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter18: Accounting Periods And Methods

Section: Chapter Questions

Problem 68P

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16. Ahmad is considering making a $10,000 investment in a venture whose promoter promises will generate immediate tax benefits for him. Ahmad, who normally itemizes his deductions, is subject to a 32% marginal tax bracket. If the investment is of a type where the taxpayer may claim either a tax credit of 25% of the amount of the expenditure or an itemized deduction for the amount of the investment, what treatment is likely most beneficial to Ahmad, and by how much will Ahmad's tax liability decline because of the investment? a.$2,500, take the tax credit. b.$-0-, take neither the itemized deduction nor the tax credit. c.$3,200, take the itemized deduction. d.Both options produce the same benefit.
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