FFC Tax Planning and Strategies Flashcards

Which tax filing status generally results in the lowest federal income tax rate for a single parent with a qualifying child?

Answer: Head of Household

Head of Household status offers lower tax rates and a higher standard deduction than the Single filing status for eligible single parents.

What is the primary tax advantage of contributing to a traditional IRA versus a Roth IRA?

Answer: Contributions may be tax-deductible in the year made

Traditional IRA contributions may be fully or partially deductible depending on income and workplace plan coverage, reducing taxable income in the contribution year.

A client sells stock held for 14 months at a gain. How is this gain taxed under U.S. federal tax law?

Answer: At long-term capital gains rates

Assets held for more than 12 months qualify for long-term capital gains rates, which are typically lower than ordinary income rates.

Which tax strategy involves selling an investment at a loss to offset capital gains elsewhere in a portfolio?

Answer: Tax-loss harvesting

Tax-loss harvesting intentionally realizes losses to offset capital gains and potentially up to $3,000 of ordinary income per year, reducing overall tax liability.

What is the standard deduction for a single filer in the U.S. for the 2024 tax year?

Answer: $14,600

For the 2024 tax year, the standard deduction for single filers is $14,600, adjusted annually for inflation.

Which of the following best describes the concept of 'tax diversification' in a client's retirement portfolio?

Answer: Holding assets in taxable, tax-deferred, and tax-free accounts

Tax diversification means maintaining accounts with different tax treatments—taxable brokerage, traditional IRA/401(k), and Roth—to allow flexible withdrawal strategies in retirement.