Tax Planning & Strategy Flashcards
7 cards from real CTP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Tax Planning & Strategy flashcards as text
A taxpayer with $200,000 in net investment income and $250,000 in modified AGI (filing single) will owe the Net Investment Income Tax on how much income?
Answer: $50,000
The 3.8% NIIT applies to the lesser of net investment income ($200,000) or the excess of MAGI over the $200,000 threshold ($50,000) — so only $50,000 is subject to the tax.
Which retirement account allows after-tax contributions with tax-free qualified withdrawals, making it ideal for a taxpayer who expects to be in a higher bracket in retirement?
Answer: Roth IRA
Roth IRA contributions are made with after-tax dollars, and qualified distributions are entirely tax-free, benefiting taxpayers who anticipate higher future rates.
A self-employed taxpayer pays $8,000 in self-employment tax. How much of that is deductible on Form 1040 as an adjustment to income?
Answer: $4,000
The deductible portion of self-employment tax is 50% of the total SE tax paid, so $8,000 × 50% = $4,000.
For tax planning purposes, which strategy is most effective for a cash-basis taxpayer who wants to reduce current-year taxable income?
Answer: Accelerate deductions into the current year
A cash-basis taxpayer can reduce current-year income by accelerating deductible expenses (e.g., prepaying business expenses or making charitable contributions) before year-end.
Which of the following is a tax-advantaged account that can be used for qualified medical expenses and whose unused balance rolls over indefinitely without penalty?
Answer: Health Savings Account (HSA)
HSAs have a triple tax advantage—contributions are deductible, growth is tax-free, and qualified withdrawals are tax-free—and balances roll over with no expiration.
A taxpayer sells stock with a $20,000 gain after holding it for 13 months. Assuming a 22% ordinary rate and 15% preferential rate, how are the gains taxed?
Answer: At 15% long-term capital gains rate
Stock held more than 12 months qualifies as long-term capital gain, taxed at preferential rates (0%, 15%, or 20%) rather than ordinary income rates.
Which business entity structure provides pass-through taxation while also offering limited liability to all owners without the ownership restrictions of an S corporation?
Answer: Multi-member LLC taxed as a partnership
A multi-member LLC taxed as a partnership provides pass-through taxation and limited liability for all members, with no restrictions on number or type of owners that S corporations impose.