Tax Law & Regulations Flashcards
7 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Tax Law & Regulations flashcards as text
Which IRC section governs the rules for deducting investment interest expense, and what is the general limitation?
Answer: IRC 163(d); limited to net investment income
IRC Section 163(d) limits the deduction for investment interest expense to the taxpayer's net investment income for the year; excess is carried forward.
A non-qualified stock option (NQSO) is exercised when the stock's FMV is $50 and the exercise price is $20. The employee recognizes:
Answer: $30 ordinary income at exercise
The $30 spread (FMV minus exercise price) at exercise is ordinary income subject to payroll and income taxes for the employee when an NQSO is exercised.
The unified credit against estate and gift tax was set at an exemption equivalent of approximately $13.61 million per person in 2024. This amount is scheduled to:
Answer: Sunset to roughly $7 million (inflation-adjusted) after 2025
The Tax Cuts and Jobs Act (TCJA) doubled the exemption, but absent new legislation the exemption sunsets after 2025, reverting to the pre-TCJA level adjusted for inflation.
Under IRC Section 72(t), early withdrawals from IRAs before age 59½ are subject to a penalty of:
Answer: 10%
A 10% early withdrawal penalty applies under IRC Section 72(t) in addition to ordinary income taxes, unless a specific exception applies.
Which of the following correctly describes the tax treatment of a Roth IRA conversion?
Answer: The converted amount is included in gross income in the year of conversion
A Roth conversion is a taxable event; the pre-tax amount converted from a traditional IRA (or pre-tax contributions plus earnings) is included in gross income in the conversion year.
For high-income taxpayers, the Section 199A qualified business income (QBI) deduction for a specified service trade or business (SSTB) is:
Answer: Phased out between the income threshold and $100,000 above it (MFJ)
For SSTBs, the QBI deduction phases out between the taxable income threshold ($383,900 MFJ in 2024) and the threshold plus $100,000, after which no deduction is allowed.
A charitable remainder unitrust (CRUT) pays the income beneficiary what each year?
Answer: A fixed percentage of the trust's assets revalued annually
A CRUT pays a fixed percentage (at least 5%) of the trust's FMV as revalued each year, so the payout fluctuates with asset values.