WMS Tax Planning & Strategies 3

Question 1

What is a Charitable Remainder Trust (CRT) and what is its primary tax planning benefit?

Accepted Answer

A trust that pays an income stream to beneficiaries for a period, then distributes remaining assets to charity, with an immediate partial charitable deduction

Answer

A trust that transfers assets directly to charity with no income stream to the donor

Answer

A trust that eliminates all estate taxes by placing all assets into a charitable organization at death

Answer

A grantor trust that permanently eliminates capital gains taxes on all transferred assets

Question 2

Which best describes the 'kiddie tax' rule and its relevance to wealth management planning?

Accepted Answer

Unearned income of children under age 19 (or full-time students under 24) above a threshold is taxed at the parent's marginal rate

Answer

Children under 18 pay absolutely no taxes on investment income earned in custodial accounts

Answer

Parents can shift unlimited investment income to minor children who are taxed at lower rates

Answer

Children subject to the kiddie tax pay a flat 10% rate on all unearned income above the threshold

Question 3

What tax incentive does a Qualified Opportunity Zone (QOZ) fund investment provide to a client with a large capital gain?

Accepted Answer

Deferral of reinvested capital gains plus potential exclusion of QOZ fund appreciation if held for at least 10 years

Answer

A dollar-for-dollar tax credit equal to 50% of the amount invested in the QOZ fund

Answer

An immediate deduction of the full investment amount against ordinary income in the year of investment

Answer

Complete exemption from all federal and state taxes on any investment made in a rural QOZ area

Question 4

Which statement most accurately describes how the Tax Cuts and Jobs Act (TCJA) changed itemized deductions for high-income taxpayers?

Accepted Answer

The TCJA eliminated the Pease limitation phase-down and suspended personal exemptions, while capping the SALT deduction at $10,000

Answer

The TCJA expanded itemized deductions by raising the SALT deduction cap to $50,000 per household

Answer

The TCJA created a new 5% surtax on itemized deductions for taxpayers earning over $1 million

Answer

The TCJA eliminated all itemized deductions for taxpayers in the 35% or 37% brackets

Question 5

A client sells a rental property at a gain. Which portion of the gain is subject to the unrecaptured Section 1250 depreciation tax rate of 25%?

Accepted Answer

Only the portion of gain attributable to previously claimed depreciation deductions on the property

Answer

The entire net gain from the sale of the property

Answer

Only the gain above the original purchase price adjusted for improvements

Answer

Rental property gains are never subject to depreciation recapture under current law

Question 6

What is the 'wash sale rule' and how must tax-loss harvesting strategies account for it?

Accepted Answer

If a taxpayer sells a security at a loss and buys the same or a substantially identical security within 30 days before or after the sale, the loss is disallowed

Answer

Investors cannot claim losses on any securities sold and repurchased within the same calendar year

Answer

Capital losses can only be harvested during the last quarter of the tax year to qualify for the deduction

Answer

The wash sale rule applies only to mutual funds and ETFs, not to individual common stocks

Question 7

For a high-income client subject to both the 20% long-term capital gains rate and the 3.8% NIIT surtax, what is the combined effective federal rate on long-term capital gains?

Accepted Answer

23.8%

Answer

20.0%

Answer

25.0%

Answer

28.0%