CFP Tax Planning & Optimization

Question 1

What is the primary difference between a tax deduction and a tax credit?

Accepted Answer

A deduction reduces taxable income while a credit directly reduces the tax owed

Answer

A tax deduction reduces taxable income (saving taxes at your marginal rate), while a tax credit directly reduces the amount of tax owed dollar-for-dollar.

Question 2

Under the current U.S. tax code, what is the maximum federal long-term capital gains tax rate for high-income taxpayers?

Accepted Answer

23.8%

Answer

High-income taxpayers face a 20% long-term capital gains rate plus the 3.8% Net Investment Income Tax (NIIT), totaling 23.8%.

Question 3

What is 'tax-loss harvesting' in the context of investment planning?

Accepted Answer

Selling investments at a loss to offset capital gains and reduce tax liability

Answer

Tax-loss harvesting involves selling securities at a loss to offset realized capital gains, thereby reducing the investor's current tax liability.

Question 4

What is the annual gift tax exclusion amount per recipient in 2024?

Accepted Answer

$18,000

Answer

The annual gift tax exclusion for 2024 is $18,000 per recipient, allowing tax-free gifting to any number of individuals without using the lifetime exemption.

Question 5

Which of the following expenses is generally deductible as a miscellaneous itemized deduction on Schedule A?

Accepted Answer

Investment interest expense

Answer

Investment interest expense remains deductible as an itemized deduction on Schedule A, subject to net investment income limitations.

CFP - Certified Financial Planner Practice Test

CFP - Certified Financial Planner Practice Test

CFP Tax Planning & Optimization