Mrs. Day structures a transaction to convert income from ordinary income to capital gain. This tax planning strategy may be taking advantage of the:

Question

Quizplus · Accepted Answer

The strategy of converting income from ordinary income to capital gain involves manipulating the character variable of the income. Ordinary income and capital gain are taxed at different rates, with capital gain generally being taxed at lower rates. Therefore, by converting ordinary income to capital gain, Mrs. Day may be able to reduce her overall tax liability.

Mrs Day Structures a Transaction to Convert Income from Ordinary