Question

If tax rates are increasing: A. taxpayers should defer deductions. B. taxpayers should defer deductions and accelerate income. C. taxpayers should defer income. D. taxpayers should accelerate income. E. None of the choices are correct.

Answer 1

Answer:

The correct option is D,taxpayers should accelerate income

Explanation:

Assuming current tax rate is 20% and believed to increase to 28% next year,the tax planning strategy available at anyone's disposal is to ensure he takes advantage of the current 20% which is lower compared to future 28% by accelerating income,hence the 20% tax is then charged on the accelerated income

The reverse would have been the case if the tax rates are decreasing,so future tax rate is envisaged to be lower compared to status quo.In this case,deferring income would  be the best strategy that saves the day