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CFP Certification Exam: Tax Planning
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The CFP Certification Tax Planning content focuses on applying tax laws to personal financial planning, covering tax computations, deductions, exemptions, and strategies to minimize liabilities for individuals, businesses, and estates. It tests the ability to analyze client data to develop, implement, and monitor tax-efficient, compliant financial strategies.  Key components of the CFP Tax Planning curriculum include: Income Tax Fundamentals: Understanding tax laws, filing status, and tax computations. Tax Compliance and Planning: Identifying tax-sensitive investment options and strategies... Show more
CFP Certification Exam: Tax Planning
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25 Questions

1. As a result of the Tax Cuts and Jobs Act of 2017, which of the following is/are correct regarding debt accumulated on a primary residence?
(1) For a loan originating after December 15, 2017, a taxpayer may deduct interest up to $750,000 in qualifying debt.
(2) Income on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not.
2. Which of the following professionals is not permitted to represent a taxpayer when audited by the IRS?
3. Any charitable contribution that is disallowed because of the limitation with respect to AGI can be carried forward for the lesser of __________ or death, and may be deducted on the donor’s future income tax returns.
4. “A loss on the sale of property between related parties is disallowed for income tax purposes.” In this statement, “related parties” includes which of the following?
(1) Lineal descendants
(2) An individual and corporation if the individual owns more than 50% of the value of outstanding stock
(3) A grantor and trustee of a trust
(4) An executor and beneficiary of an estate
5. Which of the following are preference items or adjustments for AMT?
(1) The bargain element of nonqualified stock options
(2) General obligation municipal bonds
(3) Oil and gas percentage depletion
(4) Depreciation (ACRS and MACRS)
6. Which of the following is correct regarding the amount of taxes withheld from an employee’s paycheck based on the number of exemptions he or she claimed on IRS Form W-4?
7. On January 1, 2018, Realto LLC sold land for $200,000. The original cost of the land was $110,000. The company received a down payment of $50,000, with the remaining balance to be paid in 2019. According to the installment method, how much profit will Realto LLC report in 2018?
8. Which of the following is correct regarding long-term contracts?
9. Which of the following are considered taxable income?
(1) Workers compensation
(2) Child support
(3) Jury duty pay
(4) Premiums paid by an employer on $75,000 of group term life insurance
10. A real estate developer sold a building to his church for $300,000. The fair market value of the building at the time of sale was $900,000. The seller’s original basis in the land was $100,000. What is the taxable gain resulting from the sale?
11. Which of the following is not a type of audit conducted by the IRS?
12. Newman received gifted shares of ABC stock with an adjusted basis of $12,000. At the time of the gift, the fair market value of the stock was $7,000. Newman sold the stock for $10,000. What is the amount of capital gain or loss that Newman must recognize?
13. Eli reports the following transactions for the current year:
1. Earned a salary of $80,000 through his full-time job.
2. Schedule C loss of $6,000 (assume material participation).
3. Received a $30,000 inheritance due to his uncle's death.
What is Zack's gross income for the current year?
14. George and Elaine were married when George died unexpectedly on February 15 of the current year. They had no dependents. Which of the following is Elaine’s tax filing status for the current year?
15. The Tax Cuts and Jobs Act of 2017 provides eligible taxpayers with a deduction of up to __________ of qualified business income (QBI) from a domestic business operated directly or through a pass-through entity.
16. Which of the following describes an itemized deduction?
17. What are the tax consequences if an installment sale occurs and the buyer is a family member who then sells the purchased property within two years after acquiring it?
18. Which of the following is/are correct regarding tax credits?
(1) A refundable tax credit cannot reduce a taxpayer’s income tax liability below zero.
(2) A non-refundable tax credit can reduce a taxpayer’s income tax liability below zero.
19. Which IRS tax form serves as an informational return used to report income, gains, losses, deductions, and credits from the operation of a partnership?
20. The majority of individual tax returns filed in the US use the __________ method of accounting.
21. Cosmo has taxable income of $200,000 and a tax liability of $55,000. Mary has taxable income of $150,000 and a tax liability of $35,000. The tax rate structure being used to tax Cosmo and Mary is __________.
22. For divorces executed before December 31, 2018, and not modified after that date, which of the following are required to deduct alimony payments?
(1) Payments must be made in cash.
(2) Payments may extend beyond the death of the payee.
(3) The payor and payee are permitted to live together.
(4) Payments cannot stop upon the contingency of a child turning age 18.
23. Which of the following are considered secondary sources of tax information?
(1) Periodicals
(2) Newsletters
(3) Books
(4) Articles
24. An improvement to a tangible asset has which of the following effects on the asset’s basis?
25. A closely held C Corp will be classified as a personal service corporation (PSC) if it falls under which of the following categories?
(1) Health (doctors and dentists)
(2) Engineering
(3) Accounting and architectural
(4) Law

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