Tax Planning & Strategy Flashcards

Which IRS safe harbor allows a taxpayer to avoid underpayment penalties by paying at least 100% of the prior year's tax liability (110% if prior-year AGI exceeded $150,000)?

Answer: Prior-year safe harbor

The prior-year safe harbor shields taxpayers from underpayment penalties if estimated tax payments equal at least 100% (or 110%) of the prior year's total tax.

Under IRC §382, what is restricted after a corporation undergoes an ownership change of more than 50%?

Answer: Use of pre-change NOL carryforwards

§382 limits the amount of pre-change NOL that can offset post-change income to a rate equal to the company's value multiplied by the long-term tax-exempt rate.

A controller implements a captive insurance arrangement. The primary tax planning benefit is:

Answer: Deducting premiums paid while retaining the underwriting profit within a related entity

Captive insurance allows a company to deduct insurance premiums paid to a related insurer, while the captive retains reserves and potential profit, creating a tax and cash flow benefit.

Which of the following is a key advantage of a Roth 401(k) over a traditional 401(k) from a long-term tax planning perspective?

Answer: Tax-free qualified withdrawals in retirement

Roth 401(k) contributions are made after-tax, but qualified distributions in retirement are completely tax-free, including all accumulated earnings.

A company expects tax rates to increase next year. Which immediate tax planning action would be most beneficial?

Answer: Defer deductions to next year and accelerate income into the current year

When rates are expected to rise, deductions become more valuable in the future, and income taxed at today's lower rates is preferable, so accelerating income and deferring deductions is optimal.

Which provision allows certain small businesses to immediately expense the full cost of qualifying depreciable assets rather than depreciating over their useful life?

Answer: §179 expensing election

IRC §179 permits businesses to elect to immediately deduct the cost of qualifying property placed in service, subject to annual dollar and income limitations.

The GILTI (Global Intangible Low-Taxed Income) regime primarily targets:

Answer: Excess profits of controlled foreign corporations above a routine return on tangible assets

GILTI captures the excess income of CFCs beyond a 10% routine return on tangible assets, subjecting it to current US tax (at a reduced rate with the §250 deduction).