Basics Beginner: The Basics of Tax Planning

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Which of the following is a good tax-saving strategy?

Selling an asset as quickly as possible for maximum gain

Postponing the payment of operating expenses such as rent, so more deductions can be squeezed into the next tax year

Holding an asset for more than one year before selling it at a gain

Holding an asset for more than one year before selling it at a gain. This results in a lower long-term capital gain rate.

What kind of retirement planning contributions can help you save money on filing your taxes currently?

An HSA

A traditional IRA

A Roth 401(k)

A traditional IRA. Contributions to a traditional IRA can help you save money on filing your taxes currently.

Which of the following is true regarding tax credits?

A tax credit reduces your taxable income as reported on Form 1040.

A tax credit reduces the actual tax you owe.

For most taxpayers, the standard tax credit will be larger and more valuable than itemizing your credits.

A tax credit reduces the actual tax you owe. Within limits, a dollar of credit reduces your tax by a dollar.

Which of the following statements are true?

A "regular" C corporation is not a tax-paying entity.

A "pass-through" business entity (e.g., a limited liability company) generally pays no tax itself.

A "pass-through " business entity pays tax that is passed through to the business owners.

All the above are true

A "pass-through" business entity (e.g., a limited liability company) generally pays no tax itself. The income passes through to the business owners, who pay tax at their own rate potentially after applying a special deduction first.

How does a contribution to a traditional IRA provide income tax savings?

Within limits, the contribution provides a dollar-for-dollar reduction in the amount of tax you owe.

The contribution provides no tax savings, since IRA funds are taxable when you finally withdraw them.

Within limits, the contribution is deducted from your taxable income.

Within limits, the contribution is deducted from your taxable income. An IRA contribution is an adjustment to income and thereby provides significant tax savings.