Tax planning plays a crucial role in the realm of CERTIFIED FINANCIAL PLANNER™ exam professionals, and mastering this subject is vital for success in the CFP® exam. To effectively navigate the complexities of tax planning, CFP® exam aspirants can greatly benefit by going through the dedicated practice questions. By engaging with tax planning problems, candidates can enhance their understanding of its concepts, develop critical thinking skills, and gain confidence in their exam preparation.
Going over the below free 10 practice MCQs on CFP® Exam Prep by Achieve will assist the aspirants to get familiar with the tax planning domain and ultimately achieving success in the exam.
Q 1. Without which of the following, a CFP is not allowed to represent a taxpayer in an IRS audit?
A. Legal representation
B. A clear criminal background
C. Proof of citizenship
D. Additional licensing
Q 2. A taxpayer’s home must have been owned and used as a principal residence for at least two out of five years preceding the date of sale to qualify for:
A. Schedule C
B. Mortgage interest tax deduction
C. Credit for home repairs
D. Section 121 exclusion
Q 3. Lewis leases out his oceanfront Miami property for 14 days every year. Lewis is able to charge $5,000 per week due to his home’s great location. Which of the following is true?
A. Any necessary repairs would be deductible, but Lewis would not be able to claim a loss
B. Lewis does not have to report the $5,000 income
C. Lewis can deduct a part of his real estate taxes and depreciation in addition to repair charges
D. Lewis does not have to report the $10,000 income
Q 4. What is the penalty levied on a self-employed taxpayer who had no income tax due the previous year but failed to withhold $10,000 in tax payments in the current year for projected tax payments?
A. $0 penalty
B. $1,000 penalty
C. $2,000 penalty
D. The penalty depends on the individual’s income tax bracket
Q 5. What are the tax implications of an instalment sale if the buyer is a family member who later sells the property within two years of purchase?
A. The family member who bought the property must recognize all gain deferred by the installment sale in the year of the subsequent sale.
B. The original seller must recognize all gain deferred by the installment sale in the year of the subsequent sale.
C. The new buyer (non-family member) must recognize all gain deferred by the installment sale in the year of the sale.
D. There are no adverse tax consequences because the one-year holding period requirement has been satisfied.
Q 6. Rose, who is 13 years old, assists his father in the development of children’s computer games. His father is the only proprietor of a business. Rose gets paid $15,000 a year for his services. What is Rose’s tax bracket for the majority of his earnings?
A. His father’s tax bracket with a reduction for social security
B. His father’s tax bracket without a reduction for social security
C. Rose’s tax bracket with a reduction for social security
D. Rose’s tax bracket without a reduction for social security
Q 7. Terry spent $9,500 on an art sculpture. He gave the artwork to his brother, Fred, as a present when it was worth $4,500 years later. Fred sold the sculpture at auction for $3,500 a few months later. What was Fred’s net gain or loss on the sale, assuming he didn’t pay gift taxes on the sculpture when he received it?
A. $1,000 loss
B. $3,500 gain
C. $6,000 loss
D. No gain or loss will be recognized
Q 8. Debra, age 12, works after school in her mother’s bakery. Her mother owns and operates the business as a sole proprietorship. Debra is paid $10,000 per year for her work. What is Debra’s tax bracket for the majority of her earnings?
A. Debra’s own tax bracket with a reduction for Social Security
B. Debra’s own tax bracket without a reduction for Social Security
C. Her mother’s tax bracket with a reduction for Social Security
D. Her mother’s tax bracket without a reduction for Social Security
Q 9. A client’s spouse passed away in the current year. The client paid an attorney $8,000 to file the estate tax return. On their final joint income tax return these fees are
A. not deductible under any circumstances
B. allowed as a credit against their regular tax liability
C. deductible as an itemized deduction
D. a deduction in determining adjusted gross income
Q 10. What impact does the claimed Section 179 deduction have on the modified taxable basis of an asset?
A. The whole cost is immediately incurred, with a consequent basis of zero that is not susceptible to recapture
B. Total cost is immediately expensed, with a consequent basis of zero that is subject to recapture
C. Partial expense with a reduced basis and not subject to recapture
D. The modified taxable basis is reduced by any expense up to the whole cost, subject to income and Section 179 expense restrictions
Attempting a minimum of 1-2 mock tests and 30-50 questions a day will aid to gauge your struggling topics and work on them. After finishing a few topics of tax planning, practice the topic-wise MCQs on Achieve to understand where further readiness is required. The utilization of CFP® Exam Prep by Achieve will further enhance your knowledge of tax planning concepts, improve problem-solving skills, and support you to gain valuable insights into the CFP® exam’s format and requirements to leapfrog the competition.