Tax Planning and Financial Literacy Flashcards
7 cards from real AFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Tax Planning and Financial Literacy flashcards as text
A client receives a $5,000 distribution from a traditional IRA at age 45. In addition to income taxes, what additional penalty applies?
Answer: 10% early withdrawal penalty
Early IRA distributions taken before age 59½ are subject to a 10% additional tax penalty on top of ordinary income taxes.
Which filing status generally results in the lowest tax liability for a single parent with a dependent child?
Answer: Head of Household
Head of Household status provides a larger standard deduction and more favorable tax brackets than Single filing status for single parents with qualifying dependents.
What is the primary tax advantage of a Health Savings Account (HSA)?
Answer: Triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free qualified withdrawals
HSAs offer a triple tax advantage — contributions are tax-deductible, funds grow tax-free, and qualified medical withdrawals are also tax-free.
A client sells stock purchased for $10,000 that is now worth $16,000 after holding it for 14 months. How will the $6,000 gain be taxed?
Answer: At long-term capital gains rates (0%, 15%, or 20%)
Assets held longer than 12 months qualify for long-term capital gains rates, which are 0%, 15%, or 20% depending on taxable income.
Which of the following expenses qualifies as a deductible student loan interest deduction?
Answer: Interest on a qualified student loan, subject to income phase-outs
The student loan interest deduction applies to interest paid on qualified student loans, but phases out at higher income levels.
What does the 'kiddie tax' rule primarily affect?
Answer: Unearned income of children under age 19 (or 24 if full-time students) taxed at parental rates
The kiddie tax taxes a child's unearned income (above a threshold) at the parent's marginal rate to prevent income-shifting strategies.
A self-employed client earns $80,000 net profit. Which deduction can they claim without itemizing?
Answer: 50% of self-employment tax paid
Self-employed individuals may deduct 50% of self-employment taxes paid as an above-the-line deduction on their Form 1040.