Assume a Corporation Is Not Required to Pay AMT in the Current

question 55

Multiple Choice

Assume a corporation is not required to pay AMT in the current year but will pay AMT next year. Also assume the corporation's regular marginal tax rate is 35%. Which tax planning strategy would minimize its after-tax cost of a charitable contribution it is considering paying to a qualified charity?

• A)Pay the contribution this year.
• B)Wait until next year to pay the contribution.
• C)The after-tax cost of the contribution will be the same no matter which year it makes the contribution.
• D)None of thesE.The marginal tax rate is higher in the current year (35%) than it will be next year (20%).Consequently, the after-tax cost of the contribution will be lower if the contribution is made in the current year.

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Definitions:

Return On Equity

A measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested.

Dividend Payout Ratio

The percentage of net income that a company pays out to its shareholders as dividends, indicating how much money a company returns to shareholders versus retaining.

Price-Earnings Ratio

A measure of a company's current share price relative to its per-share earnings.

Dividend Payout Ratio

A financial ratio that shows the percentage of a company's net income that is paid out to its shareholders as dividends.