Tax Strategies Flashcards

Under a properly structured accountable plan, how are employee business expense reimbursements treated?

Answer: Excluded from the employee's income and deductible by the employer

Accountable plan reimbursements are not taxable to the employee and are deductible business expenses for the employer.

When executing a backdoor Roth IRA conversion, which rule can create unexpected tax if the client holds other pre-tax IRA balances?

Answer: Pro-rata rule

The pro-rata rule treats conversions as coming proportionally from all pre-tax and after-tax IRA balances.

A client sells stock at a loss to harvest the loss. To avoid the wash sale rule, they must not buy substantially identical stock within what window?

Answer: 30 days before or after the sale

The wash sale rule disallows the loss if substantially identical securities are purchased within 30 days before or after the sale.

What is the main advantage of donating appreciated stock held longer than one year directly to a public charity instead of selling it first?

Answer: The donor deducts fair market value and avoids capital gains tax on the appreciation

Donating long-term appreciated property yields an FMV deduction and the built-in gain is never taxed to the donor.

At what minimum age can an IRA owner make a qualified charitable distribution (QCD) directly from an IRA to a charity?

Answer: 70½

QCDs are available to IRA owners age 70½ or older and are excluded from taxable income.

To contribute to a Health Savings Account, a taxpayer must be covered by which type of health plan?

Answer: A high-deductible health plan (HDHP)

HSA eligibility requires HDHP coverage and no disqualifying other coverage such as Medicare.

What does a Section 179 election allow a business to do with qualifying equipment purchases?

Answer: Deduct the cost immediately in the year placed in service, subject to limits

Section 179 permits expensing qualifying property up to an annual limit instead of depreciating it over time.