Tax Planning & Preparation Flashcards

A self-employed taxpayer earns $80,000 in net self-employment income. What is the deductible portion of self-employment tax on the federal return?

Answer: 50% of SE tax paid

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

Which filing status generally results in the lowest tax liability for an unmarried taxpayer supporting a dependent child?

Answer: Head of Household

Head of Household status provides wider tax brackets and a higher standard deduction than Single status for qualifying taxpayers.

The American Opportunity Tax Credit (AOTC) covers which years of post-secondary education?

Answer: First four years only

The AOTC is available only for the first four years of post-secondary education and cannot be claimed beyond that period.

What is the maximum deduction a taxpayer can take for cash charitable contributions to a public charity under normal rules (as a % of AGI)?

Answer: 60%

Cash contributions to public charities are deductible up to 60% of the taxpayer's adjusted gross income, with excess carried forward five years.

A taxpayer converts a traditional IRA to a Roth IRA. What is the tax consequence in the year of conversion?

Answer: The converted amount is included in gross income

The pre-tax amount converted from a traditional IRA to a Roth IRA is fully included in the taxpayer's gross income in the year of conversion.

Under the passive activity loss rules, rental real estate losses are generally:

Answer: Deductible only against passive income

Passive activity losses, including most rental losses, can only offset passive activity income unless a special allowance or real estate professional exception applies.

What form does an employer use to report wages paid and taxes withheld for each employee annually?

Answer: W-2

Form W-2, Wage and Tax Statement, is issued by employers to employees and the IRS to report annual wages and withheld taxes.