CTP Tax Planning & Strategy 2

Question 1

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?

Accepted Answer

$50,000

Answer

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.

Question 2

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?

Accepted Answer

Roth IRA

Answer

Roth IRA contributions are made with after-tax dollars, and qualified distributions are entirely tax-free, benefiting taxpayers who anticipate higher future rates.

Question 3

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?

Accepted Answer

$4,000

Answer

The deductible portion of self-employment tax is 50% of the total SE tax paid, so $8,000 × 50% = $4,000.

Question 4

For tax planning purposes, which strategy is most effective for a cash-basis taxpayer who wants to reduce current-year taxable income?

Accepted Answer

Accelerate deductions into the current year

Answer

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.

Question 5

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?

Accepted Answer

Health Savings Account (HSA)

Answer

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.

(CTP) Certified Tax Professional Practice Test

(CTP) Certified Tax Professional Practice Test

CTP Tax Planning & Strategy 2