Question

C Corp has two subsidiaries, B Corp and D Corp. Assume the three entities have the following marginal tax rates: C Corp (36%) D Corp (21%) B Corp (10%) The related group is contemplating an expenditure that any of the entities could logically undertake. An effective tax planning strategy, using the entity variable, might be to shift deductions to ______ Corp and taxable income to ______ Corp.

Answer 1

An effective tax planning strategy could be to shift deductions to B Corp and taxable income to D Corp to optimize the tax position and potentially reduce the overall tax liability.

Step-by-step explanation:

An effective tax planning strategy, using the entity variable, might be to shift deductions to B Corp and taxable income to D Corp. This strategy takes advantage of the lower tax rate of B Corp (10%) for deductions, which can reduce the overall tax liability for the related group. Shifting taxable income to D Corp (21%) can help minimize the tax burden compared to C Corp (36%). By strategically allocating deductions and taxable income among the entities, the related group can optimize their tax position and potentially reduce their overall tax liability.