Tax Consulting Tax Management 4

Question 1

Which estate planning tool removes life insurance proceeds from the taxable estate?

Accepted Answer

Irrevocable life insurance trust (ILIT)

Answer

An ILIT owns the policy so proceeds are excluded from the insured's taxable estate.

Question 2

What is the annual gift tax exclusion designed to do?

Accepted Answer

Allow tax-free gifts up to a set amount per recipient each year

Answer

The annual exclusion lets a donor give up to a set amount per recipient yearly without using the lifetime exemption.

Question 3

A multinational client earns foreign income already taxed abroad. Which mechanism prevents double taxation?

Accepted Answer

Foreign tax credit

Answer

The foreign tax credit offsets U.S. tax liability with taxes paid to foreign governments on the same income.

Question 4

Which retirement account requires minimum distributions starting at age 73 under current law?

Accepted Answer

Traditional IRA

Answer

Traditional IRAs require RMDs beginning at age 73 under the SECURE 2.0 Act.

Question 5

What does the alternative minimum tax (AMT) primarily target?

Accepted Answer

High-income taxpayers who use many deductions and preferences

Answer

The AMT ensures high-income taxpayers with substantial deductions still pay a minimum amount of tax.

Tax Consulting Practice Test