CFP Tax Planning & Optimization

Question 1

What is the primary difference between a tax deduction and a tax credit?

Accepted Answer

A deduction reduces taxable income while a credit directly reduces the tax owed

Answer

A deduction is more valuable than a credit dollar-for-dollar

Answer

A credit reduces taxable income while a deduction reduces tax owed

Answer

Both deductions and credits reduce taxable income equally

Question 2

Under the current U.S. tax code, what is the maximum federal long-term capital gains tax rate for high-income taxpayers?

Accepted Answer

23.8%

Answer

15%

Answer

20%

Answer

37%

Question 3

What is 'tax-loss harvesting' in the context of investment planning?

Accepted Answer

Selling investments at a loss to offset capital gains and reduce tax liability

Answer

Selling winning investments to realize gains in low-income years

Answer

Donating appreciated assets to charity to avoid capital gains

Answer

Converting traditional IRA assets to Roth during low-income years

Question 4

What is the annual gift tax exclusion amount per recipient in 2024?

Accepted Answer

$18,000

Answer

$15,000

Answer

$16,000

Answer

$17,000

Question 5

Which of the following expenses is generally deductible as a miscellaneous itemized deduction on Schedule A?

Accepted Answer

Investment interest expense

Answer

Non-reimbursed employee business expenses

Answer

Personal casualty losses (non-disaster)

Answer

Political contributions

Question 6

What is the 'wash-sale rule' and how does it affect tax-loss harvesting?

Accepted Answer

It disallows a tax loss if the same or substantially identical security is repurchased within 30 days before or after the sale

Answer

It prohibits selling any investment within 30 days of purchase

Answer

It requires investors to wait 60 days before repurchasing sold securities

Answer

It applies only to mutual fund transactions