CFC Tax Planning & Strategy 4

Question 1

Which IRS safe harbor allows a taxpayer to avoid underpayment penalties by paying at least 100% of the prior year's tax liability (110% if prior-year AGI exceeded $150,000)?

Accepted Answer

Prior-year safe harbor

Answer

The prior-year safe harbor shields taxpayers from underpayment penalties if estimated tax payments equal at least 100% (or 110%) of the prior year's total tax.

Question 2

Under IRC §382, what is restricted after a corporation undergoes an ownership change of more than 50%?

Accepted Answer

Use of pre-change NOL carryforwards

Answer

§382 limits the amount of pre-change NOL that can offset post-change income to a rate equal to the company's value multiplied by the long-term tax-exempt rate.

Question 3

A controller implements a captive insurance arrangement. The primary tax planning benefit is:

Accepted Answer

Deducting premiums paid while retaining the underwriting profit within a related entity

Answer

Captive insurance allows a company to deduct insurance premiums paid to a related insurer, while the captive retains reserves and potential profit, creating a tax and cash flow benefit.

Question 4

Which of the following is a key advantage of a Roth 401(k) over a traditional 401(k) from a long-term tax planning perspective?

Accepted Answer

Tax-free qualified withdrawals in retirement

Answer

Roth 401(k) contributions are made after-tax, but qualified distributions in retirement are completely tax-free, including all accumulated earnings.

Question 5

A company expects tax rates to increase next year. Which immediate tax planning action would be most beneficial?

Accepted Answer

Defer deductions to next year and accelerate income into the current year

Answer

When rates are expected to rise, deductions become more valuable in the future, and income taxed at today's lower rates is preferable, so accelerating income and deferring deductions is optimal.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC Tax Planning & Strategy 4