Tax Planning and Strategy Flashcards
6 cards from real CTA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Tax Planning and Strategy flashcards as text
Which tax planning strategy involves shifting income to a family member in a lower tax bracket?
Answer: Income splitting
Income splitting involves transferring income-producing assets or business income to family members in lower tax brackets to reduce the overall family tax burden.
What is the primary benefit of tax deferral strategies?
Answer: Moving taxable income to a later period, allowing current funds to grow
Tax deferral moves income recognition to a future period, allowing those funds to grow on a pre-tax basis in the interim.
Tax-loss harvesting is a strategy that involves:
Answer: Selling securities at a loss to offset capital gains
Tax-loss harvesting involves deliberately selling investments at a loss to offset realized capital gains and reduce taxable income.
Which strategy is used to convert a traditional IRA to a Roth IRA, paying taxes now to receive tax-free distributions later?
Answer: Roth conversion
A Roth conversion involves transferring funds from a traditional IRA to a Roth IRA and including the converted amount in current taxable income.
The 'bunching' strategy for charitable contributions involves:
Answer: Concentrating multiple years' donations into one year to exceed the standard deduction
Bunching accelerates charitable contributions into a single year so total itemized deductions exceed the standard deduction, then taking the standard deduction in other years.
Which type of trust is used to reduce estate taxes by making an irrevocable gift of appreciating assets while retaining an income stream?
Answer: Grantor retained annuity trust (GRAT)
A GRAT allows a grantor to transfer appreciating assets to heirs estate-tax-free if the assets outperform the IRS Section 7520 rate.