CA Tax Planning & Preparation 2

Question 1

A self-employed individual earned $120,000 in net profit. What is the deductible portion of self-employment tax they can claim on their federal return?

Accepted Answer

50% of SE tax paid

Answer

Self-employed individuals may deduct 50% of self-employment tax as an above-the-line deduction on Form 1040.

Question 2

Which of the following retirement account types allows tax-free qualified withdrawals in retirement?

Accepted Answer

Roth IRA

Answer

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

Question 3

A taxpayer sells stock held for 14 months at a $10,000 gain. How is this gain classified for federal tax purposes?

Accepted Answer

Long-term capital gain

Answer

Assets held more than 12 months qualify for long-term capital gain treatment with preferential tax rates.

Question 4

Under the passive activity loss rules, which of the following taxpayers may deduct up to $25,000 of rental losses against ordinary income?

Accepted Answer

An active participant with MAGI under $100,000

Answer

The $25,000 rental loss allowance phases out between $100,000–$150,000 MAGI and requires active participation.

Question 5

What is the primary purpose of a Section 1031 like-kind exchange?

Accepted Answer

To defer recognition of capital gain on exchanged business property

Answer

A Section 1031 exchange allows deferral—not elimination—of capital gain when qualifying real property is exchanged for like-kind property.

(CA) Chartered Certified Accountant Practice Test

(CA) Chartered Certified Accountant Practice Test

CA Tax Planning & Preparation 2