Tax Planning and Compliance Flashcards
6 cards from real AAFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Tax Planning and Compliance flashcards as text
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?
Answer: Preferential deductions and credits
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.
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?
Answer: IDGT installment sale
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.
Qualified dividends are taxed at long-term capital gain rates if the underlying stock is held for more than how many days?
Answer: 61 days
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.
Which IRS provision allows self-employed individuals to deduct health insurance premiums paid for themselves and their families?
Answer: Self-employed health insurance deduction
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.
The Section 199A qualified business income deduction allows eligible pass-through business owners to deduct up to what percentage of qualified business income?
Answer: 20%
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.
Which tax planning strategy places income-producing assets in lower-bracket family members' names to reduce the overall family tax burden?
Answer: Income shifting
Income shifting moves investment income or business income to family members in lower tax brackets through gifts, family partnerships, or employment of family members.