Ahmad Is Considering Making a $5,000 Investment in a Venture

question 94

Multiple Choice

Ahmad is considering making a $5,000 investment in a venture which its promoter promises will generate immediate tax benefits for him.Ahmad, who normally itemizes his deductions, is in the 28% 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 normally would be most beneficial to Ahmad and by how much will Ahmad's tax liability decline because of the investment?

• A)$0, take neither the itemized deduction nor the tax credit.
• B)$1,250, take the tax credit.
• C)$1,400, take the itemized deduction.
• D)Both options produce the same benefit.
• E)None of the above.

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Definitions:

Cognitive Therapists

Mental health professionals specializing in therapies that identify and change destructive or disturbing thought patterns that have a negative influence on behavior and emotions.

Schizotypal Personality Disorder

A condition of the mind manifesting with intense social distress, chaotic thoughts, mistrustful ideations, a detachment from the surroundings, temporary psychotic episodes, and frequently atypical beliefs.

Pathological Personality

A type of personality disorder characterized by enduring maladaptive patterns of behavior, cognition, and inner experience.

Narcissistic Personality Disorder

An enduring mental disorder marked by persistent overestimation of one's significance, a craving for others' acclaim, and an insensitivity to the feelings of others.