Tax Planning Strategies Flashcards

A client donates publicly traded stock held for more than one year directly to a public charity. What is the typical tax result?

Answer: Deduction at fair market value and no capital gains tax on the appreciation

Donating long-term appreciated securities yields a fair market value deduction while avoiding capital gains tax.

A client alternates between taking the standard deduction and itemizing by concentrating two years of charitable gifts into one year. This strategy is called:

Answer: Bunching

Bunching groups deductible expenses into one year to exceed the standard deduction, then takes the standard deduction the next year.

Which vehicle lets a donor take an immediate charitable deduction while recommending grants to charities over future years?

Answer: Donor-advised fund

Contributions to a donor-advised fund are deductible when made, while grants can be recommended later.

Under SECURE 2.0, unused 529 plan funds may be rolled into the beneficiary's Roth IRA subject to a lifetime maximum of:

Answer: $35,000

The lifetime cap is $35,000, the 529 must have been open at least 15 years, and annual Roth contribution limits apply.

Why is a health savings account often called 'triple tax-advantaged'?

Answer: Contributions are deductible, growth is tax-free, and qualified medical withdrawals are tax-free

HSAs offer deductible (or pre-tax) contributions, tax-free growth, and tax-free distributions for qualified medical expenses.

A founder sells C corporation stock that qualifies under IRC §1202. What planning benefit may apply?

Answer: A partial or full exclusion of gain on qualified small business stock

Section 1202 allows exclusion of gain on qualified small business stock meeting holding-period and other requirements, up to a per-issuer cap.

A client with highly appreciated, low-yield assets wants an income stream, a partial current charitable deduction, and to avoid immediate capital gains on sale. Which strategy fits best?

Answer: Charitable remainder trust

A CRT can sell contributed assets without immediate tax, pays the donor an income stream, and provides a deduction for the remainder interest.