CTA Tax Planning and Strategy

Question 1

Which tax planning strategy involves shifting income to a family member in a lower tax bracket?

Accepted Answer

Income splitting

Answer

Income splitting involves transferring income-producing assets or business income to family members in lower tax brackets to reduce the overall family tax burden.

Question 2

What is the primary benefit of tax deferral strategies?

Accepted Answer

Moving taxable income to a later period, allowing current funds to grow

Answer

Tax deferral moves income recognition to a future period, allowing those funds to grow on a pre-tax basis in the interim.

Question 3

Tax-loss harvesting is a strategy that involves:

Accepted Answer

Selling securities at a loss to offset capital gains

Answer

Tax-loss harvesting involves deliberately selling investments at a loss to offset realized capital gains and reduce taxable income.

Question 4

Which strategy is used to convert a traditional IRA to a Roth IRA, paying taxes now to receive tax-free distributions later?

Accepted Answer

Roth conversion

Answer

A Roth conversion involves transferring funds from a traditional IRA to a Roth IRA and including the converted amount in current taxable income.

Question 5

The 'bunching' strategy for charitable contributions involves:

Accepted Answer

Concentrating multiple years' donations into one year to exceed the standard deduction

Answer

Bunching accelerates charitable contributions into a single year so total itemized deductions exceed the standard deduction, then taking the standard deduction in other years.

CTA - Certified Tax Advisor Practice Test

CTA - Certified Tax Advisor Practice Test

CTA Tax Planning and Strategy