Free CFC Tax Planning Questions and Answers

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What is the purpose of tax loss harvesting?

Correct! Wrong!

Tax loss harvesting involves selling investments at a loss to offset capital gains and reduce overall tax liability.

Which tax-advantaged account is specifically designed for education expenses?

Correct! Wrong!

A 529 Plan is a tax-advantaged savings plan designed to encourage saving for future education costs.

How can charitable contributions impact tax planning?

Correct! Wrong!

Charitable contributions can be itemized and deducted from taxable income, thereby reducing the overall tax liability.

What is the primary goal of tax planning?

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The primary goal of tax planning is to arrange financial affairs in a way that minimizes tax liability.

Which of the following is a tax-deferred retirement account?

Correct! Wrong!

Contributions to a Traditional IRA may be tax-deductible, and the investment earnings grow tax-deferred until withdrawal.

Which retirement account offers tax-free withdrawals for qualified expenses?

Correct! Wrong!

Withdrawals from a Roth IRA are tax-free if they meet the criteria for qualified distributions.

What is the standard deduction?

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The standard deduction is a fixed dollar amount that taxpayers can subtract from their income to reduce their taxable income.

Which of the following is considered a tax credit?

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The Child Tax Credit directly reduces the amount of tax owed, unlike deductions which reduce taxable income.

What is the purpose of a Health Savings Account (HSA) in tax planning?

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An HSA allows individuals to save money tax-free for qualified medical expenses, providing a triple tax advantage: contributions, earnings, and withdrawals for medical expenses are all tax-free.

Which of the following is an example of an itemized deduction?

Correct! Wrong!

State and local taxes paid can be itemized and deducted from taxable income if the taxpayer chooses to itemize deductions instead of taking the standard deduction.

What is the significance of capital gains in tax planning?

Correct! Wrong!

Capital gains are taxed at different rates depending on whether they are short-term or long-term, impacting tax planning strategies.

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