Question

The tax system

From a corporation’s point of view, does the tax treatment of dividends and interest paid favor the use of debt financing or equity financing?

Debt financing

Equity financing

You bought 1,000 shares of Tund Corp. stock for $75.00 per share and sold it for $77.25 per share within the same year. How will your gain or loss be treated when you file your taxes?

As a capital gain taxed at the current ordinary-income tax rate

As a capital gain taxed at the long-term tax rate

Depreciation expenses directly affect a company’s taxable income. An increase in depreciation expense will lead to a   taxable income. It will   tax deducted from a company’s earnings, thus leading to a   operating cash flow.

If a taxpayer is liable to pay $8,950 under AMT law but $7,500 according to the regular tax system, the taxpayer will need to pay taxes according to the   .

The applicable tax rate for S corporations is based on the:

Stockholders’ individual tax rates

Corporate tax rate

Answer 1

From a corporation’s point of view, does the tax treatment of dividends and interest paid favor the use of debt financing or equity financing?

Debt financing - Reason is that interest is treated as a deductible expense in calculation of taxable income.

You bought 1,000 shares of Tund Corp. stock for $75.00 per share and sold it for $77.25 per share within the same year. How will your gain or loss be treated when you file your taxes?

As a capital gain taxed at the current ordinary-income tax rate - Reason is that the shares were sold within 12 months from the date of purchase. Capital gaion is taxed at long-term tax rate only when the investment is held for at least one year.

Depreciation expenses directly affect a company’s taxable income. An increase in depreciation expense will lead to a lower taxable income. It will decrease tax deducted from a company’s earnings, thus leading to a higher operating cash flow.

If a taxpayer is liable to pay $8,950 under AMT law but $7,500 according to the regular tax system, the taxpayer will need to pay taxes according to the AMT system.

The applicable tax rate for S corporations is based on the:

Stockholders’ individual tax rates - The reason is that S corporations are a flow through entities.