CAT Tax Planning & Preparation 2

Question 1

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?

Accepted Answer

50% of SE tax paid

Answer

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

Question 2

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

Accepted Answer

Head of Household

Answer

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

Question 3

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

Accepted Answer

First four years only

Answer

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

Question 4

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

Accepted Answer

60%

Answer

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

Question 5

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

Accepted Answer

The converted amount is included in gross income

Answer

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.

(CAT) Certified Accounting Technician Practice Test