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Tax Planning & Compliance Flashcards

7 cards from real CPA 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 & Compliance flashcards as text

  1. Which of the following is NOT a deductible business expense under IRC Section 162?

    Answer: Political contributions made on behalf of the business

    Political contributions are explicitly disallowed as business deductions under IRC Section 162(e), even if made for business purposes.

  2. Under the passive activity loss rules, rental losses are generally:

    Answer: Deductible only against passive income unless the taxpayer is a real estate professional

    Rental activities are passive by default; losses can only offset other passive income unless the taxpayer qualifies as a real estate professional under IRC Section 469.

  3. What is the tax treatment of a like-kind exchange under IRC Section 1031?

    Answer: Gain is deferred until the replacement property is sold

    A qualifying Section 1031 exchange defers—not eliminates—gain recognition by substituting the basis of the old property into the new property.

  4. Which of the following retirement accounts allows after-tax contributions with tax-free qualified withdrawals?

    Answer: Roth IRA

    Roth IRAs are funded with after-tax dollars; qualifying distributions (age 59½, 5-year holding period met) are completely tax-free including earnings.

  5. A taxpayer with a Schedule C business pays $8,000 in self-employment tax. What deduction is allowed on Form 1040?

    Answer: 50% of self-employment tax ($4,000) as an above-the-line deduction

    Self-employed taxpayers may deduct 50% of their self-employment tax as an above-the-line adjustment to income on Schedule 1.

  6. Under the at-risk rules, a partner's deductible loss from a partnership is limited to:

    Answer: The amount the partner has at risk, including cash invested and recourse debt

    IRC Section 465 limits loss deductions to amounts actually at risk—cash invested plus recourse liabilities for which the partner is personally liable.

  7. What is the primary tax advantage of a Health Savings Account (HSA)?

    Answer: Contributions are deductible, growth is tax-free, and qualified withdrawals are tax-free

    HSAs offer a unique triple tax benefit: deductible contributions, tax-free investment growth, and tax-free distributions for qualified medical expenses.