CTA Tax Planning and Strategy 3

Question 1

Accelerating deductions and deferring income is most beneficial when:

Accepted Answer

Tax rates are expected to increase in future years

Answer

Tax rates are expected to decrease in future years

Answer

Income is already at the lowest marginal rate

Answer

The taxpayer has large capital loss carryforwards

Question 2

Which type of depreciation recapture applies to gains from selling depreciable real property attributable to prior Section 1250 depreciation?

Accepted Answer

Unrecaptured Section 1250 gain taxed at a maximum 25% rate

Answer

Section 1245 recapture taxed as ordinary income

Answer

Section 1231 gain taxed at long-term capital gain rates

Answer

AMT depreciation adjustment

Question 3

Which strategy involves gifting assets expected to appreciate significantly to reduce future estate taxes?

Accepted Answer

Annual gifting and leveraged gifting techniques

Answer

Step-up in basis strategy

Answer

NOL carryforward planning

Answer

Income-in-respect-of-decedent planning

Question 4

Installment sale treatment under IRC Section 453 allows sellers to:

Accepted Answer

Spread gain recognition over the payment period as principal is received

Answer

Avoid all capital gains tax on the sale

Answer

Convert capital gains to ordinary income

Answer

Accelerate depreciation recapture

Question 5

The economic substance doctrine is used by the IRS to challenge transactions that:

Accepted Answer

Lack business purpose or economic substance beyond tax benefits

Answer

Generate capital gains rather than ordinary income

Answer

Involve related party transactions

Answer

Exceed the passive activity loss limits

Question 6

Which planning strategy is used by high-income taxpayers to shift business income to a lower-bracket child through employment in a family business?

Accepted Answer

Family employment strategy

Answer

Kiddie tax strategy

Answer

Income assignment strategy

Answer

Passive activity shifting