Tax Planning & Strategy Flashcards

A married couple earns $500,000 combined. What is the additional Medicare tax rate applied to wages above the $250,000 threshold for joint filers?

Answer: 0.9%

The Additional Medicare Tax is 0.9% on wages and self-employment income above $250,000 for married filing jointly ($200,000 for single filers).

Which of the following Section 1231 transactions results in ordinary income rather than capital gain treatment when the asset was subject to accelerated depreciation?

Answer: Sale at a gain equal to accumulated depreciation (Section 1245 recapture)

Section 1245 recapture converts gain equal to prior depreciation deductions back to ordinary income, preventing taxpayers from converting ordinary deductions into lower-taxed capital gains.

A taxpayer makes a $15,000 gift to a friend in 2024. How much of this gift is subject to federal gift tax reporting?

Answer: $0 — the entire amount is excluded

The 2024 annual gift tax exclusion is $18,000 per recipient; since $15,000 is below that threshold, no gift tax return is required and no taxable gift occurs.

Under the passive activity loss rules, which taxpayer may deduct up to $25,000 of rental real estate losses against non-passive income?

Answer: A taxpayer who actively participates with MAGI below $100,000

The $25,000 rental real estate allowance phases out between $100,000 and $150,000 MAGI and requires the taxpayer to actively participate (not materially participate) in the rental activity.

Which of the following best describes a tax-free reorganization under Section 368 of the IRC?

Answer: A corporate restructuring that meets statutory requirements allowing shareholders to defer gain recognition

Section 368 reorganizations (mergers, consolidations, stock-for-stock exchanges) allow shareholders to defer gain recognition when statutory requirements such as continuity of interest and business purpose are met.

A taxpayer converts a traditional IRA to a Roth IRA in a year when they are in the 22% bracket but expect to be in the 32% bracket in retirement. What is the primary tax planning benefit?

Answer: Both A and B

Roth conversions eliminate lifetime RMDs and allow the taxpayer to pay taxes now at 22% rather than later at 32%, providing both estate planning and income tax savings.

A C corporation has a fiscal year ending June 30. When is the federal corporate income tax return (Form 1120) due?

Answer: September 15

C corporation returns are due on the 15th day of the fourth month after the fiscal year end, so a June 30 fiscal year end means the return is due September 15.