CFP

Tax Reduction And Management Techniques - Sample Questions 1 - 3

1. The Bundy Family (seven total family members) have three children currently enrolled in post-secondary educational institutions (ages 18, 19 and 20), and two children in elementary school. Their family adjusted gross income and modified adjusted gross income for the year was under $45,000. They paid $8,000 in dependent care to a nanny to watch the children for the summer break. Which of the following are TRUE statements?

I. All five children could qualify for the Child Tax Credit.
II. Three children could qualify for the American Opportunity Credit.
III. The family qualifies for the Lifetime Learning Credit.
IV. The family could qualify for up to $8,000 in credits under the Dependent Care Credit.

A) II only
B)
II and III only
C)
I, II and III
D) I, II, III and IV


2. Jim and Linda Smith have 22,000 shares of a drug company stock in a taxable joint account that pays a $4.50 annual dividend. They also own their own business where two of the grandchildren (ages 11 and 12), help out during the summer months. All of the following are valid tax saving techniques for the current year EXCEPT:

A) Gift $26,000 worth of the stock shares to each grandchild in a 529 plan.
B)
Pay each grandchild for their summer help and setup a Roth IRA for them.
C)
Contribute pre-tax to the company retirement plan for both Jim and Linda.
D) Use the annual dividend from the drug stock to reinvest in more of the same stock.

3. Which of the following is a valid tax planning technique used to accelerate deductions, or defer income in a given tax year?

A) Write a check for professional licenses and journals in December of the current year for next year's renewals.
B)
Postpone incurring and paying legal fees into the next year.
C)
Realize capital gains by selling short-term stock.
D) Buy corporate bonds.



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