CPB CPB Tax Planning & Optimization 1 — Questions and Answers
Question 1: What is the annual federal gift tax exclusion amount per recipient for 2024?
- $17,000
- $18,000 (Correct answer)
- $15,000
- $20,000
Correct answer: $18,000
The annual gift tax exclusion for 2024 is $18,000 per recipient, allowing tax-free gifts up to that amount without using lifetime exemption.
Question 2: Which tax strategy involves deliberately selling investments at a loss to offset realized capital gains?
- Tax deferral
- Tax-loss harvesting (Correct answer)
- Tax-exempt investing
- Income shifting
Correct answer: Tax-loss harvesting
Tax-loss harvesting involves selling depreciated securities to realize losses that can offset capital gains and up to $3,000 of ordinary income annually.
Question 3: What is the federal long-term capital gains tax rate applicable to the highest income bracket?
- 15%
- 20% (Correct answer)
- 25%
- 37%
Correct answer: 20%
The maximum federal long-term capital gains tax rate is 20%, applied to taxpayers in the highest ordinary income bracket.
Question 4: Which retirement account allows qualified withdrawals in retirement to be completely tax-free?
- Traditional IRA
- SEP IRA
- Roth IRA (Correct answer)
- SIMPLE IRA
Correct answer: Roth IRA
A Roth IRA is funded with after-tax dollars, so qualified distributions in retirement are entirely tax-free, including earnings.
Question 5: The 'step-up in basis' rule provides that inherited assets receive a cost basis equal to:
- The original purchase price
- The fair market value on the date of the decedent's death (Correct answer)
- The average of purchase price and date-of-death value
- Zero basis for tax purposes
Correct answer: The fair market value on the date of the decedent's death
The step-up in basis resets an inherited asset's cost basis to its fair market value at the decedent's date of death, eliminating embedded capital gains.
Question 6: Which type of trust is most effective for removing assets from a taxable estate because it cannot be revoked?
- Revocable living trust
- Irrevocable trust (Correct answer)
- Testamentary trust
- Blind trust
Correct answer: Irrevocable trust
An irrevocable trust permanently transfers ownership of assets out of the grantor's estate, reducing estate tax exposure since the grantor relinquishes control.
CPB CPB Tax Planning & Optimization 1
What is the annual federal gift tax exclusion amount per recipient for 2024?