Financial Advisor Tax Planning Strategies for Financial Advisors 5

Question 1

A self-employed client earns $200,000 in net self-employment income. Which retirement account allows the highest potential annual contribution?

Accepted Answer

Solo 401(k)

Answer

A Solo 401(k) allows both employee elective deferrals (up to $23,000 in 2024) plus a 25% employer profit-sharing contribution, often exceeding the SEP-IRA's 25% limit alone at higher income levels.

Question 2

Which IRS provision allows a taxpayer to spread a large IRA distribution over three years for tax purposes following a federally declared disaster?

Accepted Answer

Qualified Disaster Distribution rules under SECURE 2.0

Answer

SECURE 2.0 Act provisions allow qualifying disaster-related distributions up to $22,000 to be included in income ratably over three years and repaid to avoid tax.

Question 3

A client is in the 37% tax bracket and holds a large position in employer stock inside their 401(k). What strategy could dramatically reduce taxes upon distribution?

Accepted Answer

Roll only the employer stock to a taxable account using Net Unrealized Appreciation (NUA) treatment

Answer

NUA treatment allows the cost basis of employer stock to be taxed as ordinary income while the appreciation (NUA) is taxed at the lower long-term capital gains rate when the stock is later sold.

Question 4

What is the 'wash sale' rule and how does it affect tax-loss harvesting?

Accepted Answer

It disallows a loss if substantially identical securities are purchased within 30 days before or after the sale

Answer

The wash sale rule disallows the tax loss if the investor buys a substantially identical security within the 30-day window before or after the sale, so advisors must purchase a different but similar fund.

Question 5

A married couple's combined income is $500,000. Which additional Medicare surtax applies to their net investment income?

Accepted Answer

3.8% Net Investment Income Tax (NIIT)

Answer

The 3.8% NIIT applies to the lesser of net investment income or the amount MAGI exceeds the threshold ($250,000 MFJ); wage income above $250,000 MFJ is subject to the 0.9% Additional Medicare Tax separately.

Financial Advisor Practice Test

Financial Advisor Practice Test

Financial Advisor Tax Planning Strategies for Financial Advisors 5