CTC Tax Planning & Advisory Strategies 3

Question 1

A client receives a large bonus in December. Which income deferral technique, if available, could legally shift that income to the following tax year?

Accepted Answer

Requesting that the employer delay the bonus payment to January under a bona fide nonqualified deferred compensation arrangement

Answer

Under a valid nonqualified deferred compensation (NQDC) plan complying with IRC §409A, an employee can elect before the year begins to defer bonus income to a future period.

Question 2

Under IRC §1031, which of the following exchanges does NOT qualify for like-kind exchange tax deferral?

Accepted Answer

A personal residence exchanged for a rental property of equal value

Answer

After the Tax Cuts and Jobs Act (TCJA), §1031 exchanges are limited to real property held for productive use or investment; a personal residence is neither, so it does not qualify.

Question 3

What is the primary advantage of a Grantor Retained Annuity Trust (GRAT) in an estate planning context?

Accepted Answer

If trust assets grow faster than the IRS §7520 hurdle rate, the appreciation passes to beneficiaries gift-tax free

Answer

A GRAT 'zeroes out' the taxable gift by setting annuity payments so the remainder has minimal gift value; any investment return above the §7520 rate passes to heirs free of transfer tax.

Question 4

A corporation with a fiscal year ending June 30 wants to accelerate deductions into the current fiscal year. Which strategy is MOST appropriate?

Accepted Answer

Prepaying expenses that will benefit the next 12-month period under the 12-month rule

Answer

Under the 12-month rule, accrual-basis taxpayers may deduct prepaid expenses if the benefit does not extend beyond 12 months from the first benefit date or beyond the end of the following tax year.

Question 5

In advising a high-income client on charitable giving, which vehicle allows the donor to take the charitable deduction in the current year while distributing funds to charities over many future years?

Accepted Answer

Donor-advised fund (DAF)

Answer

A DAF allows an immediate charitable deduction when assets are contributed, while the donor advises on grants to qualified charities over any future time horizon.

(CTC) Chartered Tax Consultant Practice Test

(CTC) Chartered Tax Consultant Practice Test

CTC Tax Planning & Advisory Strategies 3