AFC Tax Planning and Financial Literacy 2

Question 1

Which retirement account allows contributions to be made with after-tax dollars, growing tax-free?

Accepted Answer

Roth IRA

Answer

Roth IRA contributions are made with after-tax dollars, and qualified withdrawals in retirement are completely tax-free.

Question 2

The Alternative Minimum Tax (AMT) was originally designed to ensure that:

Accepted Answer

High-income earners pay at least a minimum level of tax

Answer

The AMT was created to prevent high-income taxpayers from using excessive deductions and credits to eliminate their tax liability.

Question 3

A client contributes $3,000 to a traditional IRA and is in the 22% tax bracket. What is the maximum immediate tax savings from this deductible contribution?

Accepted Answer

$660

Answer

The tax savings equals the contribution multiplied by the marginal tax rate: $3,000 × 22% = $660.

Question 4

Which of the following describes the 'above-the-line' deductions on a federal tax return?

Accepted Answer

Deductions subtracted from gross income to arrive at AGI

Answer

Above-the-line deductions reduce gross income to calculate Adjusted Gross Income (AGI) and are available regardless of whether you itemize.

Question 5

A self-employed financial counselor must pay self-employment tax at approximately what rate on net self-employment income?

Accepted Answer

15.3%

Answer

Self-employment tax is 15.3% (12.4% Social Security + 2.9% Medicare) on net self-employment earnings, covering both the employee and employer shares.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Tax Planning and Financial Literacy 2