RFC Tax Planning & Optimization 2

Question 1

A client in the 32% marginal tax bracket has $10,000 of short-term capital gains. What is the most tax-efficient way to offset these gains?

Accepted Answer

Harvest short-term capital losses from depreciated securities

Answer

Short-term capital losses directly offset short-term capital gains, which are taxed at ordinary income rates, providing the most efficient offset.

Question 2

Which of the following describes the 'wash sale' rule under IRC Section 1091?

Accepted Answer

A loss is disallowed if the same or substantially identical security is repurchased within 30 days before or after the sale

Answer

The wash sale rule disallows a capital loss deduction when the investor repurchases a substantially identical security within the 61-day window (30 days before or after the sale).

Question 3

A married couple filing jointly earns $600,000 in 2024. Their investment income is $50,000. What additional tax applies to their net investment income?

Accepted Answer

3.8% Net Investment Income Tax (NIIT)

Answer

The 3.8% NIIT applies to net investment income for taxpayers whose MAGI exceeds $250,000 (MFJ), making the entire $50,000 subject to this surtax.

Question 4

Which strategy involves systematically converting traditional IRA funds to a Roth IRA during low-income years to minimize lifetime taxes?

Accepted Answer

Bracket-filling Roth conversion

Answer

Bracket-filling Roth conversions involve converting just enough traditional IRA funds each year to fill up lower tax brackets, reducing future RMDs and tax-deferred balances.

Question 5

What is the primary tax advantage of holding appreciated securities until death rather than selling them during lifetime?

Accepted Answer

The gains are permanently exempt from capital gains tax due to the step-up in basis

Answer

Assets held until death receive a stepped-up basis to fair market value at date of death, eliminating income tax on any unrealized appreciation accumulated during the decedent's lifetime.

(RFC) Registered Financial Consultant Practice Test

(RFC) Registered Financial Consultant Practice Test

RFC Tax Planning & Optimization 2