FFC FFC Tax Planning and Strategies 2

Question 1

Which type of account allows a self-employed individual to contribute the highest dollar amount for retirement on a tax-deferred basis?

Accepted Answer

SEP-IRA

Answer

A SEP-IRA allows self-employed individuals to contribute up to 25% of net self-employment income, up to the annual IRS limit, far exceeding traditional IRA limits.

Question 2

What does the Alternative Minimum Tax (AMT) primarily target?

Accepted Answer

High-income taxpayers who use deductions and preferences to reduce regular tax

Answer

The AMT ensures that high-income taxpayers who benefit heavily from deductions and tax preferences pay a minimum level of federal income tax.

Question 3

A financial fitness coach is advising a client who received an inheritance. Which statement about inherited assets and taxes is most accurate?

Accepted Answer

Inherited assets typically receive a stepped-up cost basis to fair market value at date of death

Answer

Inherited assets generally receive a stepped-up basis equal to their fair market value on the decedent's date of death, potentially eliminating capital gains on prior appreciation.

Question 4

Which of the following is a qualified education expense that may be paid from a 529 plan without triggering taxes or penalties?

Accepted Answer

Tuition, fees, and required books

Answer

Qualified 529 distributions include tuition, mandatory fees, and required books and supplies; non-qualified expenses trigger income tax and a 10% penalty on earnings.

Question 5

What is the purpose of a Qualified Opportunity Zone (QOZ) investment from a tax perspective?

Accepted Answer

To defer and potentially reduce capital gains taxes by reinvesting in designated economically distressed areas

Answer

QOZ investments allow taxpayers to defer existing capital gains and, if held long enough, exclude gains on the QOZ investment itself, incentivizing development in low-income communities.

(FFC) Financial Fitness Coach Certification Practice Test

(FFC) Financial Fitness Coach Certification Practice Test

FFC FFC Tax Planning and Strategies 2