Tax Planning & Preparation Flashcards

Which filing status generally results in the lowest federal income tax liability for an eligible taxpayer?

Answer: Married Filing Jointly

Married Filing Jointly typically provides the widest tax brackets and largest standard deduction, resulting in the lowest tax for most couples.

What is tax-loss harvesting?

Answer: Selling investments at a loss to offset capital gains and reduce taxable income

Tax-loss harvesting sells depreciated securities to realize capital losses that offset gains and up to $3,000 of ordinary income annually.

For 2024, what is the standard mileage rate for business driving that a self-employed taxpayer may deduct?

Answer: 67 cents per mile

The IRS set the standard business mileage rate at 67 cents per mile for 2024.

A taxpayer who cannot file by April 15 files Form 4868. What does this extension grant?

Answer: A 6-month extension to file the return, but taxes are still due April 15

Form 4868 grants a 6-month filing extension to October 15 but does not extend the deadline to pay taxes owed, which remain due April 15.

Which provision allows a self-employed individual to deduct 100% of health insurance premiums paid for themselves and their family?

Answer: Self-Employed Health Insurance Deduction (above-the-line)

Self-employed individuals may deduct 100% of health insurance premiums as an above-the-line deduction on Form 1040, reducing AGI.

What is the 'wash-sale rule' and how does it affect tax-loss harvesting?

Answer: It disallows a loss deduction if a substantially identical security is purchased within 30 days before or after the sale

The wash-sale rule disallows the capital loss if the taxpayer buys the same or substantially identical security within 30 days before or after selling at a loss.

Which of the following is an example of 'income shifting' for tax planning purposes?

Answer: Gifting income-producing assets to a lower-bracket family member

Income shifting transfers income-producing assets or income to family members in lower tax brackets to reduce the overall family tax burden.