Tax Consulting Tax Management 5

Question 1

What is 'asset location' as a tax management strategy?

Accepted Answer

Placing investments in account types that minimize their tax impact

Answer

Asset location places tax-inefficient assets in tax-advantaged accounts and tax-efficient ones in taxable accounts.

Question 2

Which filing status generally provides the most favorable tax brackets for a married couple?

Accepted Answer

Married filing jointly

Answer

Married filing jointly typically offers wider brackets and more credits than filing separately.

Question 3

A client sells a primary residence owned and lived in for 3 of the last 5 years. What exclusion may apply?

Accepted Answer

Section 121 home sale exclusion of up to $250,000 (single) / $500,000 (married)

Answer

Section 121 excludes up to $250,000 (single) or $500,000 (married) of gain on a qualifying primary residence sale.

Question 4

What is the tax treatment of qualified dividends compared to ordinary income?

Accepted Answer

Taxed at lower long-term capital gains rates

Answer

Qualified dividends are taxed at preferential long-term capital gains rates, lower than ordinary income rates.

Question 5

Which strategy uses a 529 plan primarily for?

Accepted Answer

Tax-advantaged saving for education expenses

Answer

A 529 plan grows tax-free and allows tax-free withdrawals for qualified education expenses.

Tax Consulting Practice Test