CFP

Tax Reduction And Management Techniques - Answer Key

1. B

Only children under age 17 qualify for the child tax credit. If the three children enrolled in post-secondary education meet all of the qualifications, they could each qualify for the American Opportunity Credit. The family qualifies for the Lifetime Learning credit. Up to $6,000 can be taken as a credit in a tax year for dependent care for two or more dependents.

2. D

The annual dividend is $99,000 (22,000 x $4.50). If they buy additional shares in the stock, the dividend paid will be higher, thus increasing their taxable income. All of the other options will reduce their taxable income. The business will receive an employee wage tax deduction, and reduce the corporate taxable income if the grandchildren are compensated for their time helping out at the business.

3. A

The goal here is to postpone income and gains to future years and take higher deductions in the current year. The only answer that achieves this answer A, by paying for next year's renewals in the current year.


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