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
What is the primary difference between a tax deduction and a tax credit?
Answer: A deduction reduces taxable income while a credit directly reduces the tax owed
A tax deduction reduces taxable income (saving taxes at your marginal rate), while a tax credit directly reduces the amount of tax owed dollar-for-dollar.
Under the current U.S. tax code, what is the maximum federal long-term capital gains tax rate for high-income taxpayers?
Answer: 23.8%
High-income taxpayers face a 20% long-term capital gains rate plus the 3.8% Net Investment Income Tax (NIIT), totaling 23.8%.
What is 'tax-loss harvesting' in the context of investment planning?
Answer: Selling investments at a loss to offset capital gains and reduce tax liability
Tax-loss harvesting involves selling securities at a loss to offset realized capital gains, thereby reducing the investor's current tax liability.
What is the annual gift tax exclusion amount per recipient in 2024?
Answer: $18,000
The annual gift tax exclusion for 2024 is $18,000 per recipient, allowing tax-free gifting to any number of individuals without using the lifetime exemption.
Which of the following expenses is generally deductible as a miscellaneous itemized deduction on Schedule A?
Answer: Investment interest expense
Investment interest expense remains deductible as an itemized deduction on Schedule A, subject to net investment income limitations.
What is the 'wash-sale rule' and how does it affect tax-loss harvesting?
Answer: It disallows a tax loss if the same or substantially identical security is repurchased within 30 days before or after the sale
The wash-sale rule disallows a capital loss deduction when a substantially identical security is purchased within 30 days before or after the loss sale.