CTP Tax Planning & Strategy 5

Question 1

A taxpayer wishes to transfer a family business to their children at a discounted value for gift tax purposes. Which valuation technique legally justifies a discount on the transferred interest?

Accepted Answer

Minority interest and lack of marketability discounts

Answer

Minority interest discounts (lack of control) and lack of marketability discounts can legally reduce the fair market value of transferred business interests for gift and estate tax purposes.

Question 2

Under the kiddie tax rules, unearned income above the threshold for a dependent child under age 19 is generally taxed at which rate?

Accepted Answer

The parents' marginal tax rate

Answer

The kiddie tax (Section 1(g)) taxes a child's net unearned income above the threshold at the parents' marginal tax rate to prevent income-shifting strategies.

Question 3

A taxpayer makes an election under Section 83(b) within 30 days of receiving restricted stock worth $10,000. Two years later the stock is worth $60,000. What is the tax outcome at vesting?

Accepted Answer

No income recognized at vesting; only capital gains later

Answer

A Section 83(b) election causes the taxpayer to recognize $10,000 of ordinary income at grant; subsequent appreciation is capital gain with the holding period starting at grant, so nothing is recognized at vesting.

Question 4

A client wants to maximize tax-deferred retirement savings as a sole proprietor with $200,000 net self-employment income. Which plan allows the highest contribution?

Accepted Answer

Solo 401(k) (employee + employer contributions up to annual limit)

Answer

A Solo 401(k) allows both an employee elective deferral (up to $23,000 in 2024, plus catch-up) AND an employer profit-sharing contribution (up to 25% of compensation), yielding the highest possible combined limit.

Question 5

Which of the following transactions qualifies as a like-kind exchange under Section 1031 after the Tax Cuts and Jobs Act of 2017?

Accepted Answer

Exchange of rental real estate for commercial real estate

Answer

After TCJA, Section 1031 like-kind exchanges are limited to real property only; personal property (equipment, vehicles, artwork) and intangibles no longer qualify.

(CTP) Certified Tax Professional Practice Test

(CTP) Certified Tax Professional Practice Test

CTP Tax Planning & Strategy 5