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Tax Planning & Optimization Flashcards

6 cards from real CFP 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 & Optimization flashcards as text

  1. What is the alternative minimum tax (AMT) designed to prevent?

    Answer: High-income taxpayers from using legitimate deductions to reduce their tax to zero or near zero

    The AMT ensures that high-income taxpayers pay a minimum level of tax by disallowing certain deductions and applying a separate tax calculation.

  2. Which estate planning strategy allows a client to remove appreciating assets from their taxable estate while retaining an income stream for a period of years?

    Answer: Grantor Retained Annuity Trust (GRAT)

    A GRAT allows the grantor to transfer appreciating assets out of their estate while retaining annuity payments for a set term, with only the appreciation above the IRS hurdle rate passing gift-tax-free.

  3. What is a Qualified Opportunity Zone (QOZ) investment and what is the primary tax benefit?

    Answer: An investment in designated low-income areas that provides deferral and possible exclusion of capital gains

    Investing capital gains into a Qualified Opportunity Fund allows deferral of the original gains and potential exclusion of gains from the QOZ investment held for at least 10 years.

  4. For a married couple filing jointly in 2024, at what income level does the Net Investment Income Tax (NIIT) of 3.8% begin to apply?

    Answer: $250,000

    The 3.8% NIIT applies to net investment income when a married couple's modified adjusted gross income exceeds $250,000.

  5. What is 'bunching' as a tax planning strategy for charitable deductions?

    Answer: Concentrating two or more years of charitable contributions into a single tax year to exceed the standard deduction

    Bunching involves concentrating multiple years of charitable gifts into one year to exceed the standard deduction threshold, enabling itemizing in that year for greater total tax savings.

  6. Which of the following is NOT a tax-advantaged education savings vehicle?

    Answer: UGMA/UTMA Custodial Account

    UGMA/UTMA accounts are custodial accounts that offer no specific tax advantages for education expenses, unlike 529 plans, Coverdell ESAs, and qualifying savings bonds.