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Tax Planning and Compliance Flashcards

6 cards from real AAFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 Tax Planning and Compliance flashcards as text

  1. Asset location refers to strategically placing assets in which type of accounts to minimize the total tax drag on a portfolio?

    Answer: Tax-advantaged vs. taxable accounts

    Asset location involves holding tax-inefficient assets (like bonds and REITs) in tax-deferred or tax-exempt accounts and tax-efficient assets (like index funds) in taxable accounts.

  2. Which provision allows individuals over age 70½ to donate up to $105,000 annually directly from an IRA to charity without including it in gross income?

    Answer: Qualified charitable distribution

    A qualified charitable distribution (QCD) allows IRA owners aged 70½ or older to transfer up to $105,000 per year directly to a qualified charity, satisfying RMDs while excluding the amount from gross income.

  3. Which depreciation method allows taxpayers to immediately expense the full cost of qualifying business assets in the year of purchase?

    Answer: Bonus depreciation (Section 168k)

    Bonus depreciation under IRC Section 168(k) allows businesses to immediately deduct a large percentage (historically 100%) of the cost of qualifying new and used business assets in the year placed in service.

  4. The step-up in cost basis at death allows heirs to inherit appreciated assets using which value as their new basis?

    Answer: Fair market value at the date of death

    When a taxpayer dies, heirs receive a step-up in basis to the asset's fair market value at the date of death, eliminating the embedded capital gains accrued during the decedent's lifetime.

  5. Which tax document reports investment income, dividends, and proceeds from broker transactions to the IRS?

    Answer: Form 1099-B and 1099-DIV

    Form 1099-B reports proceeds from securities transactions and Form 1099-DIV reports dividends and distributions, both issued by brokers and mutual funds to investors and the IRS.

  6. Which AAFM-relevant concept refers to the total return an investor receives after accounting for taxes at the applicable marginal rate?

    Answer: After-tax return

    After-tax return measures the actual net return retained by an investor after paying taxes on dividends, interest, and capital gains at their applicable marginal rates.