CTC Client Advisory & Consultation 3

Question 1

A client who is a sole proprietor asks how net operating losses from their business affect their taxes. What is the most accurate advisory statement?

Accepted Answer

Post-2017 NOLs can only be carried forward and are limited to 80% of taxable income

Answer

Under the TCJA, NOLs arising after 2017 have an indefinite carryforward but are limited to offsetting 80% of taxable income in any given year.

Question 2

A client contributed $7,000 to a traditional IRA but is an active participant in an employer plan and their MAGI exceeds the phase-out range. What advisory action is appropriate?

Accepted Answer

The contribution is non-deductible and should be tracked on Form 8606

Answer

Non-deductible IRA contributions are allowed regardless of plan participation; they must be reported on Form 8606 to establish basis and avoid double taxation on future distributions.

Question 3

A business client wants to adopt a Section 179 deduction for equipment purchases. Which limitation should you emphasize?

Accepted Answer

The deduction is subject to a phase-out once total asset purchases exceed the investment limit

Answer

Section 179 deductions phase out dollar-for-dollar once total asset purchases exceed the phase-out threshold ($2,890,000 in 2023), making it less beneficial for high-investment years.

Question 4

A client asks about the tax treatment of alimony paid under a divorce agreement finalized in 2019. What is the correct advice?

Accepted Answer

Alimony is deductible by the payor and includible in the recipient's income

Answer

Divorce agreements finalized before January 1, 2019, retain the pre-TCJA treatment: alimony is deductible above-the-line by the payor and included in the recipient's gross income.

Question 5

A client with a rental property wants to claim depreciation. The property was purchased for $400,000, with $80,000 allocated to land. What annual depreciation should you advise?

Accepted Answer

$11,636 using a 27.5-year recovery period on $320,000

Answer

Residential rental property is depreciated over 27.5 years using the straight-line method on the depreciable basis (cost minus land), so $320,000 ÷ 27.5 = approximately $11,636.

(CTC) Chartered Tax Consultant Practice Test

(CTC) Chartered Tax Consultant Practice Test

CTC Client Advisory & Consultation 3