Tax Planning Flashcards
11 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 11 Tax Planning flashcards as text
What is the primary goal of tax planning?
Answer: To minimize tax liability
The primary goal of tax planning is to arrange financial affairs in a way that minimizes tax liability.
Which of the following is a tax-deferred retirement account?
Answer: Traditional IRA
Contributions to a Traditional IRA may be tax-deductible, and the investment earnings grow tax-deferred until withdrawal.
What is the significance of capital gains in tax planning?
Answer: They are subject to different tax rates depending on the holding period
Capital gains are taxed at different rates depending on whether they are short-term or long-term, impacting tax planning strategies.
Which tax-advantaged account is specifically designed for education expenses?
Answer: 529 Plan
A 529 Plan is a tax-advantaged savings plan designed to encourage saving for future education costs.
What is the standard deduction?
Answer: A fixed dollar amount that reduces taxable income
The standard deduction is a fixed dollar amount that taxpayers can subtract from their income to reduce their taxable income.
Which of the following is considered a tax credit?
Answer: Child Tax Credit
The Child Tax Credit directly reduces the amount of tax owed, unlike deductions which reduce taxable income.
What is the purpose of tax loss harvesting?
Answer: To offset capital gains with capital losses
Tax loss harvesting involves selling investments at a loss to offset capital gains and reduce overall tax liability.
Which of the following is an example of an itemized deduction?
Answer: State and local taxes paid
State and local taxes paid can be itemized and deducted from taxable income if the taxpayer chooses to itemize deductions instead of taking the standard deduction.
Which retirement account offers tax-free withdrawals for qualified expenses?
Answer: Roth IRA
Withdrawals from a Roth IRA are tax-free if they meet the criteria for qualified distributions.
How can charitable contributions impact tax planning?
Answer: They can be deducted from taxable income if itemized
Charitable contributions can be itemized and deducted from taxable income, thereby reducing the overall tax liability.
What is the purpose of a Health Savings Account (HSA) in tax planning?
Answer: To provide a tax-advantaged way to save for medical expenses
An HSA allows individuals to save money tax-free for qualified medical expenses, providing a triple tax advantage: contributions, earnings, and withdrawals for medical expenses are all tax-free.