AAFM Tax Planning and Compliance 2

Question 1

The alternative minimum tax (AMT) is designed to ensure that high-income individuals pay at least a minimum amount of tax by disallowing certain what?

Accepted Answer

Preferential deductions and credits

Answer

The AMT recalculates tax liability by adding back certain preferential deductions and exemptions, ensuring wealthy taxpayers cannot reduce their effective tax rate below the AMT floor.

Question 2

Which estate planning technique transfers future asset appreciation out of an estate by selling assets to a grantor trust in exchange for an installment note?

Accepted Answer

IDGT installment sale

Answer

An intentionally defective grantor trust (IDGT) installment sale removes future appreciation from the estate by exchanging assets for a promissory note at the applicable federal rate, with income tax paid by the grantor.

Question 3

Qualified dividends are taxed at long-term capital gain rates if the underlying stock is held for more than how many days?

Accepted Answer

61 days

Answer

To receive qualified dividend treatment, investors must hold the stock for more than 60 days in the 121-day period surrounding the ex-dividend date, which means at least 61 days.

Question 4

Which IRS provision allows self-employed individuals to deduct health insurance premiums paid for themselves and their families?

Accepted Answer

Self-employed health insurance deduction

Answer

Self-employed individuals can deduct 100% of health insurance premiums for themselves, spouses, and dependents as an above-the-line deduction on their personal tax return.

Question 5

The Section 199A qualified business income deduction allows eligible pass-through business owners to deduct up to what percentage of qualified business income?

Accepted Answer

20%

Answer

Section 199A allows owners of S-corporations, partnerships, and sole proprietorships to deduct up to 20% of qualified business income, subject to income thresholds and limitations.

American Academy of Financial Management (AAFM) Practice Test

American Academy of Financial Management (AAFM) Practice Test

AAFM Tax Planning and Compliance 2