Taxation for Financial Planners
Test Preparation
Course Introduction
This course provides an in-depth exploration of tax principles and regulations pertinent to financial planning. It covers key topics such as income tax laws, strategies for minimizing tax liability, tax implications of investments, estate and gift taxation, and retirement planning considerations. Through real-world case studies and practical applications, students will learn how to analyze clients financial situations, identify tax-saving opportunities, and integrate tax-efficient strategies into comprehensive financial plans. The course equips future financial planners with the knowledge and tools required to provide effective tax guidance aligned with ethical and legal standards.
Recommended Textbook
South Western Federal Taxation 2014 Individual Income Taxes 37th Edition by William Hoffman
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20 Chapters
2434 Verified Questions
2434 Flashcards
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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155 Verified Questions
155 Flashcards
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Sample Questions
Q1) As a matter of administrative convenience,the IRS would prefer to have Congress increase (rather than decrease)the amount of the standard deduction allowed to individual taxpayers.
A)True
B)False
Answer: True
Q2) Julius,a married taxpayer,makes gifts to each of his six children.A maximum of twelve annual exclusions could be allowed as to these gifts.
A)True
B)False
Answer: True
Q3) If property tax rates are not changed,the amount of ad valorem taxes imposed on realty will remain the same.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Working With the Tax Law
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83 Flashcards
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Sample Questions
Q1) The IRS is required to make a letter ruling public.
A)True
B)False
Answer: True
Q2) Proposed Regulations are binding on IRS agents.
A)True
B)False
Answer: False
Q3) Regulations are arranged in the same sequence as the Internal Revenue Code.
A)True
B)False
Answer: True
Q4) Explain the tax appeals process from trial courts.
Answer: Appeals from a District Court or a Tax Court decision are to the U.S.Court of Appeals for the circuit in which the taxpayer resides.Appeals from the Court of Federal Claims go to the U.S.Court of Appeals for the Federal Circuit.Few Tax Court cases are appealed,and when appeals are made,most are filed by the taxpayer rather than the IRS.There is no appeal from the Small Cases Division.
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Chapter 3: Tax Formula and Tax Determination; an
Overview of Property Transactions
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) Kyle and Liza are married and under 65 years of age.During 2012,they furnish more than half of the support of their 19-year old daughter,May,who lives with them.She graduated from high school in May 2011.May earns $15,000 from a part-time job,most of which she sets aside for future college expenses.Kyle and Liza also provide more than half of the support of Kyle's cousin who lives with them.Liza's father,who died on January 3,2012,at age 90,has for many years qualified as their dependent.How many personal and dependency exemptions should Kyle and Liza claim?
A) Two.
B) Three.
C) Four.
D) Five.
E) None of the above.
Answer: C
Q2) For the year a spouse dies,the surviving spouse is considered married for the entire year for income tax purposes.
A)True
B)False
Answer: True
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Chapter 4: Gross Income: Concepts and Inclusions
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Sample Questions
Q1) Sarah,a majority shareholder in Teal,Inc.,made a $200,000 interest-free loan to the corporation.Sarah is not an employee of the corporation.
A) Sarah must recognize imputed interest income and the corporation must recognize imputed interest expense.
B) Sarah must recognize imputed interest expense and the corporation must recognize imputed interest income.
C) Sarah must recognize imputed dividend income and the corporation may recognize imputed interest expense.
D) Neither Sarah's nor the corporation's gross income is affected by the loans because no interest was charged.
E) None of the above.
Q2) George and Erin are divorced,and George is required to pay Erin $20,000 of alimony each year.George earns $75,000 a year.Erin is not required to include the alimony payments in gross income because George earned the income and therefore he should pay the tax on the income.
A)True B)False
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Chapter 5: Gross Income: Exclusions
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) The First Chance Casino has gambling facilities,a bar,a restaurant,and a hotel.All employees are allowed to obtain food from the restaurant at no charge during working hours.In the case of the employees who operate the gambling facilities,bar,and restaurant,60% of all of Casino's employees,the meals are provided for the convenience of the Casino.However,the hotel workers,demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work.Which of the following is correct?
A) All the employees are required to include the value of the meals in their gross income. B) Only the restaurant employees may exclude the value of their meals from gross income.
C) Only the employees who work in gambling, the bar, and the restaurant may exclude the meals from gross income.
D) All of the employees may exclude the value of the meals from gross income.
E) None of the above.
Q2) If a tax-exempt bond will yield approximately .65 (1 - .35)times the yield on a taxable bond of equal risk,who benefits from the tax exemption: the Federal government,the state and local governments who issue the bonds,or the investors?
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Page 7
Chapter 6: Deductions and Losses: in General
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154 Verified Questions
154 Flashcards
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Sample Questions
Q1) The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance and all events tests.
A)True
B)False
Q2) Nikeya sells land (adjusted basis of $120,000)to her adult son,Shamed,for its appraised value of $95,000.Which of the following statements is correct?
A) Nikeya's recognized loss is $25,000 ($95,000 amount realized - $120,000 adjusted basis).
B) Shamed's adjusted basis for the land is $120,000 ($95,000 cost + $25,000 disallowed loss for Nikeya).
C) If Shamed subsequently sells the land for $112,000, he has no recognized gain or loss.
D) Only a. and b. are correct.
E) a., b., and c. are correct.
Q3) Expenses incurred for the production or collection of income generally are deductions from adjusted gross income.
A)True
B)False
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) If qualified production activities income (QPAI)cannot be used in the calculation of the domestic production activities deduction in 2012 because of the taxable income limitation,the product of the amount not allowed multiplied by 9% can be carried over for 5 years.
A)True
B)False
Q2) A loss from a worthless security is always treated as a short-term capital loss.
A)True
B)False
Q3) Roger,an individual,owns a proprietorship called Green Thing.For the year 2012,Roger has the following items:
· Business income-$200,000.
· Business expense-$150,000.
· Loss on a completely destroyed business machine.The machine had an adjusted basis of $25,000 and a fair market value of $20,000.
· Loss on a business truck.The truck had an adjusted basis of $8,000.The repairs to fix the truck cost $10,000.
Q4) Why was the domestic production activities deduction (DPAD)enacted by Congress?
Q5) How is qualified production activities income (QPAI)calculated?
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Chapter 8: Depreciation, cost Recovery, amortization, and Depletion
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Under the alternative depreciation system (ADS),the half-year convention must be used for personalty.
A)True
B)False
Q2) In 2011,Gail had a § 179 deduction carryover of $25,000.In 2012,she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2012 is $142,000.Determine Gail's § 179 deduction for 2012.
A) $25,000.
B) $115,000.
C) $130,000.
D) $140,000.
E) None of the above.
Q3) The § 179 deduction can exceed $139,000 in 2012 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.
A)True
B)False
Q4) Land improvements are generally not eligible for cost recovery.
A)True
B)False
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Once the actual cost method is used,a taxpayer cannot change to the automatic mileage method in a later year.
A)True
B)False
Q2) Cathy takes five key clients to a nightclub and incurs the following costs: $320 limousine rental,$460 cover charge,$920 drinks and dinner,and $200 tips.Several days after the function,Cathy mails each client a pen costing $25.To the cost must be added $4 for engraving of the client's name.Assuming adequate substantiation and a business justification,what is Cathy's deduction?
Q3) Ryan performs services for Jordan.Which,if any,of the following factors indicate that Ryan is an employee,rather than an independent contractor?
A) Ryan provides his own support services (e.g., work assistants).
B) Ryan obtained his training (i.e., job skills) from Jordan.
C) Ryan is paid based on tasks performed.
D) Ryan makes his services available to others.
E) None of the above.
Q4) Ashley and Matthew are husband and wife and both are practicing CPAs.On a joint return,Ashley gets to deduct her professional dues but Matthew does not.Explain.
Page 11
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Sergio was required by the city to pay $2,000 for the cost of new curbing installed by the city in front of his personal residence.The new curbing was installed throughout Sergio's neighborhood as part of a street upgrade project.Sergio may not deduct $2,000 as a tax,but he may add the $2,000 to the basis of his property.
A)True
B)False
Q2) In 2012,Boris pays a $3,800 premium for high-deductible medical insurance for himself and his family.In addition,he contributes $3,400 to a Health Savings Account.Which of the following statements is true?
A) If Boris is self-employed, he may deduct $7,200 as a deduction for AGI.
B) If Boris is self-employed, he may deduct $3,400 as a deduction for AGI and may include the $3,800 premium when calculating his itemized medical expense deduction.
C) If Boris is an employee, he may deduct $7,200 as a deduction for AGI.
D) If Boris is an employee, he may include $7,200 when calculating his itemized medical expense deduction.
E) None of the above.
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Chapter 11: Investor Losses
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Sample Questions
Q1) Describe the types of activities and taxpayers that are subject to the at-risk rules.
Q2) Anita owns Activity A which produces active income and Activity B which produces losses.From a tax planning perspective,Anita will be better off if Activity B is a passive activity.
A)True
B)False
Q3) Harry earned investment income of $18,500,incurred investment interest expense of $15,500,and other investment expenses of $9,000 during the current year.Harry may deduct $9,500 of investment interest expense this year and carry forward $6,000 to future years.
A)True
B)False
Q4) Anne sells a rental house for $100,000 (adjusted basis of $55,000).During her ownership,$60,000 of losses have been suspended under the passive activity loss rules.Determine the tax treatment to Anne on the disposition of the property.
Q5) Describe the general rules that limit the deduction of investment interest expense.
Q6) What special passive loss treatment is available to real estate activities?
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Page 13
Chapter 12: Alternative Minimum Tax
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) AGI is used as the base for application of percentage limitations (i.e.,20%,30%,50%)that apply to the charitable contribution deduction for regular income tax purposes.Modified AGI is used as the base for application of percentage limitations that apply to the charitable contribution deduction for AMT purposes.
A)True
B)False
Q2) How can the positive AMT adjustment for research and experimental expenditures be avoided?
Q3) After personal property is fully depreciated for both regular income tax purposes and AMT purposes,the positive and negative adjustments that have been made for AMT purposes will net to zero.
A)True
B)False
Q4) The C corporation AMT rate can be higher than the individual AMT rates.
A)True
B)False
Q5) What is the relationship between taxable income and AMTI?
Q6) Why is there no AMT adjustment for charitable contributions?
Q7) Can AMT adjustments and preferences be both positive and negative?
Page 14
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Chapter 13: Tax Credits and Payment Procedures
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Sample Questions
Q1) Because current U.S.corporate income tax rates are higher than many foreign corporate income tax rates,the overall limitation does not yield a lower foreign tax credit than the amount of foreign taxes actually paid.
A)True
B)False
Q2) The purpose of the tax credit for rehabilitation expenditures is to encourage the relocation of businesses from older,economically distressed areas (i.e.,inner city)to newer locations.
A)True
B)False
Q3) The credit for child and dependent care expenses is an example of a refundable credit.
A)True B)False
Q4) If an employee holds two jobs during the year,an overwithholding of FICA tax will result.
A)True
B)False
Q5) Describe the withholding requirements applicable to employers.
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Chapter 14: Property Transactions: Determination of Gain or
Loss and Basis Considerations
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Sample Questions
Q1) Ashley sells real property for $280,000.The buyer pays $4,000 in property taxes that had accrued during the year while the property was still legally owned by Ashley.In addition,Ashley pays $14,000 in commissions and $3,000 in legal fees in connection with the sale.How much does Ashley realize (the amount realized)from the sale of her property?
A) $259,000.
B) $263,000.
C) $267,000.
D) $280,000.
E) None of the above.
Q2) Nontaxable stock dividends result in no change to the total basis of the old and new stock,but the basis per share decreases.
A)True
B)False
Q3) Annette purchased stock on March 1,2012,for $165,000.At December 31,2012,it was worth $171,000.She also purchased a bond on September 1,2012,for $20,000.At year end,it was worth $16,000.Determine Annette's realized and recognized gain or loss.
Q4) What is the general formula for calculating the adjusted basis of property?
Q5) What is a deathbed gift and what tax consequences apply?
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Chapter 15: Property Transactions: Nontaxable Exchanges
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Sample Questions
Q1) Nancy and Tonya exchanged assets.Nancy gave Tonya her personal residence with an adjusted basis of $280,000 and a fair market value of $560,000.The house has a mortgage of $200,000 which is assumed by Tonya.Tonya gave Nancy a yacht used in her business with an adjusted basis of $250,000 and a fair market value of $360,000.What is Tonya's realized and recognized gain?
A) $310,000 realized and $310,000 recognized gain.
B) $310,000 realized and $0 recognized gain.
C) $110,000 realized and $110,000 recognized gain.
D) $110,000 realized and $0 recognized gain.
E) None of the above.
Q2) The holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property.
A)True
B)False
Q3) How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?
Q4) Define qualified small business stock under § 1045.
Q5) Discuss the treatment of losses from involuntary conversions.
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Chapter 16: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) Which of the following comparisons is correct?
A) Corporations may carryback capital losses; individuals may not.
B) Both corporation and individual long-term capital losses carryover as short-term capital losses.
C) Corporations may carryforward capital losses indefinitely; individuals may only carryforward capital losses for five years.
D) Both corporations and individuals may use an alternative tax rate on net capital gains.
E) None of the above.
Q2) Sara is filing as head of household and has 2012 taxable income of $27,000 which includes $13,000 of net long-tem capital gain.The net long-term capital gain is made up of $10,000 25% gain and $3,000 0%/15% gain.What is the tax on her taxable income using the alternative tax method?
A) $0.
B) $4,050.
C) $2,980.
D) $3,615.
E) None of the above.
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Chapter 17: Property Transactions: Section 1231 and Recapture Provisions
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Sample Questions
Q1) Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.
A)True
B)False
Q2) Section 1231 property generally does not include musical compositions.
A)True
B)False
Q3) Which of the following assets held by a retail business is a § 1231 asset?
A) Inventory.
B) A machine used in the business and held less than one year.
C) A factory building used in the business and held more than one year.
D) Accounts receivable.
E) All of the above.
Q4) The maximum amount of the unrecaptured § 1250 gain (25% gain)is the depreciation taken on real property sold at a recognized gain.
A)True
B)False
Q5) Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.
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Chapter 18: Accounting Periods and Methods
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Sample Questions
Q1) Charlotte sold her unincorporated business for $600,000 in 2012.The sales contract allocated $120,000 to equipment,$300,000 to land,and $180,000 to goodwill.Charlotte had a $0 basis in the goodwill,the land cost $150,000,and the equipment originally cost $250,000 but it was fully depreciated.What is the amount of the gain eligible for installment sales treatment?
A) $0.
B) $330,000.
C) $450,000.
D) $600,000.
E) None of the above.
Q2) Alice,Inc.,is an S corporation that has been in business for five years.Its annual gross receipts have never exceeded $1 million.The corporation operates a retail store and also owns rental property.The sales from the retail store and the rental income may be reported by the cash method,unless Alice previously elected the accrual method.
A)True
B)False
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Chapter 19: Deferred Compensation
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Sample Questions
Q1) Under a defined benefit plan,the annual benefit payable to an employee is limited to the smaller of $200,000 (in 2012)or 100% of the employee's average compensation for the highest 3 years of employment.
A)True
B)False
Q2) Stream,Inc.,uses a two- to six-year graded vesting approach in its defined contribution plan.If Sloane has 3 years of service,what is her nonforfeitable percentage?
A) 0%.
B) 20%.
C) 40%.
D) 60%.
E) 80%.
Q3) Compare a § 401(k)plan with an IRA.
Q4) If an employer's contribution to a SEP IRA is less than $50,000 in 2012 (or 25% of the employee's earned income,if less),the employee can contribute the difference.
A)True
B)False
Q5) What is a profit sharing plan?
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Chapter 20: Corporations and Partnerships
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Sample Questions
Q1) When forming a corporation under § 351,recognized gain is the greater of realized gain or the amount of boot received.
A)True
B)False
Q2) The domestic production activities deduction (DPAD)for a corporation is 9% of the greater of QPAI or TI.
A)True
B)False
Q3) Qualified dividends received by a noncorporate shareholder cannot be taxed at a rate higher than 15% and can be taxed as low as 0%.
A)True
B)False
Q4) Unlike individuals,corporations cannot take advantage of § 1033 to elect to defer recognizing gain on involuntary conversions.
A)True
B)False
Q5) The domestic production activities deduction (DPAD)is handled differently for a partnership than for a C corporation.Explain
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