Tax Consulting Tax Management 3 — Questions and Answers
Question 1: What is the maximum annual contribution catch-up allowed for 401(k) participants age 50 and over in addition to the standard limit (2024 rules)?
- $7,500 (Correct answer)
- $1,000
- $3,000
- $10,000
Correct answer: $7,500
Participants age 50+ can contribute an additional $7,500 catch-up to a 401(k) for 2024.
Question 2: Which deduction allows eligible pass-through business owners to deduct up to 20% of qualified business income?
- Section 199A QBI deduction (Correct answer)
- Section 179 expensing
- Section 1031 exchange
- Section 162 trade deduction
Correct answer: Section 199A QBI deduction
The Section 199A deduction permits up to a 20% deduction of qualified business income for eligible pass-through entities.
Question 3: A client defers capital gains by reinvesting business real estate proceeds into similar property. This is a:
- Section 1031 like-kind exchange (Correct answer)
- Roth conversion
- Section 351 transfer
- Installment sale
Correct answer: Section 1031 like-kind exchange
A Section 1031 like-kind exchange defers capital gains tax when real property is exchanged for similar business or investment property.
Question 4: What is the main tax advantage of a Health Savings Account (HSA)?
- Triple tax benefit: deductible contributions, tax-free growth, tax-free qualified withdrawals (Correct answer)
- Only contributions are deductible
- It is taxed like a Roth IRA only
- Withdrawals are always taxed
Correct answer: Triple tax benefit: deductible contributions, tax-free growth, tax-free qualified withdrawals
An HSA offers a triple tax benefit when funds are used for qualified medical expenses.
Question 5: Which strategy spreads gain recognition over multiple years when selling property?
- Installment sale method (Correct answer)
- Tax-loss harvesting
- Mark-to-market election
- Cost segregation
Correct answer: Installment sale method
An installment sale recognizes gain as payments are received, spreading the tax liability across years.
Question 6: A taxpayer in the 12% bracket considers a Roth conversion. Why might this be advantageous?
- Paying tax now at a low rate avoids higher rates on future withdrawals
- Roth conversions are always tax-free
- It eliminates required minimum distributions on the converted amount during the owner's life
- Both A and C (Correct answer)
Correct answer: Both A and C
Converting at a low current rate locks in lower tax, and Roth IRAs have no RMDs for the original owner.
Question 7: What is depreciation recapture?
- Taxation of prior depreciation deductions as ordinary income upon asset sale (Correct answer)
- A deduction for new equipment
- A method to defer income
- A type of charitable deduction
Correct answer: Taxation of prior depreciation deductions as ordinary income upon asset sale
Depreciation recapture taxes the portion of gain attributable to prior depreciation, often at ordinary income rates.
Tax Consulting Tax Management 3
What is the maximum annual contribution catch-up allowed for 401(k) participants age 50 and over in addition to the standard limit (2024 rules)?