Question

Which of the following best characterizes the primary purpose of effective tax planning?

1) Avoids ordinary income
2) Converts passive activity expense to active expense
3) Eludes double taxation
4) Creates, increases, or accelerates deductions
5) Maximizes the taxpayer's after-tax wealth

Answer 1

The primary purpose of effective tax planning is to maximize the taxpayer's after-tax wealth.

Step-by-step explanation:

The primary purpose of effective tax planning is to maximize the taxpayer's after-tax wealth. This means structuring one's financial affairs in a way that minimizes tax liabilities and maximizes the amount of money that the taxpayer gets to keep. By taking advantage of tax deductions, credits, and other strategies, individuals and businesses can legally reduce their tax burden and retain more of their income or profits.