If a firm faces progressive tax rates,
A)they should spread income out across time and subsidiaries.
B)they should focus on maximizing income in one division or subsidiary.
C)they should manage their income recognition without regard to their taxes.
D)none of the above

Question

Quizplus · Accepted Answer

By spreading out income across time and subsidiaries, the firm can potentially lower their overall tax rate by avoiding hitting the highest tax bracket in one year or in one location. This strategy can also help with cash flow management by avoiding large tax bills in any given year. Focusing on maximizing income in one division or subsidiary may actually result in a higher tax bill overall, as a higher income may push the firm into a higher tax bracket. Managing income recognition without regard to taxes is not a sound strategy, as paying attention to tax implications can help the firm optimize their overall tax burden.

If a Firm Faces Progressive Tax Rates