Tax Planning & Preparation Flashcards
7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Tax Planning & Preparation flashcards as text
A sole proprietor wants to reduce taxable income by contributing to a retirement plan. Which plan allows the highest annual contribution limit for a high-income self-employed individual?
Answer: Solo 401(k)
A Solo 401(k) allows both employee and employer contributions, resulting in the highest potential annual contribution for self-employed individuals.
A taxpayer receives $50,000 in alimony under a divorce agreement finalized in 2018. How is this treated for federal tax purposes?
Answer: Taxable to the recipient and deductible by the payor
Pre-2019 divorce agreements retain the old rules: alimony is deductible by the payor and included in the recipient's gross income.
Which of the following expenditures qualifies as a deductible business expense under IRC Section 162?
Answer: Reasonable salary paid to an arm's-length employee
Ordinary and necessary business expenses like reasonable employee wages are deductible under IRC Section 162 in the year paid or incurred.
What is the 'step-up in basis' rule applicable at death?
Answer: The inherited asset's basis is reset to fair market value at the date of death
Under IRC Section 1014, heirs receive a basis equal to the asset's fair market value at the decedent's date of death, eliminating pre-death appreciation from income tax.
A taxpayer in the 22% bracket has $5,000 of long-term capital gains. What federal rate typically applies to long-term capital gains for this bracket?
Answer: 15%
Taxpayers in the 22% ordinary income bracket are generally subject to the 15% preferential long-term capital gains rate.
Which of the following best describes the purpose of estimated tax payments (Form 1040-ES)?
Answer: To prepay current-year tax liability when withholding is insufficient
Estimated tax payments allow taxpayers with insufficient withholding—such as the self-employed—to pay current-year taxes quarterly to avoid underpayment penalties.
Which tax planning strategy involves shifting income-producing assets or investments to family members in lower tax brackets?
Answer: Income splitting
Income splitting distributes income among family members in lower brackets to reduce the overall family tax burden, subject to limitations like the kiddie tax.