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CFP · 14% of the exam

Tax Planning practice questions

10 free Tax Planning questions for the CFP® Certification Examination (CFP) exam, each with the correct answer and an explanation for every option.

Start the questionsFree 10-question CFP quiz

What this domain covers

How individuals and businesses are taxed and how planning reduces the bill: income tax rules, business entities, property transactions and timing strategies.

Exam weight
14%
On a real exam
≈ 24 questions
In our bank
83 questions

Topics that come up most

  • Income tax calculation, deductions and credits
  • Tax treatment of business entities
  • Capital gains, losses and basis
  • Passive activity and at-risk rules
  • Charitable giving and tax reduction strategies

How to study it

Practise working out basis and the character of gain on gifted, inherited and sold property; those rules feed questions here and in estate planning.

Sample Tax Planning questions

Try each one before opening the answer. Original questions written to the official exam objectives.

  1. Question 1

    Gains on qualified small business stock under Section 1202 held more than five years may be:

    • ADeductible against wages as an ordinary business expense
    • BTaxed at ordinary income rates plus a surcharge
    • CExcluded from federal income tax, up to set limits
    • DTaxed only when the company goes public
    Show answer and explanation

    Answer: C) Excluded from federal income tax, up to set limits

    • AIncorrect. Gains aren't deductions.
    • BIncorrect. The point is exclusion.
    • CCorrect. Many requirements apply.
    • DIncorrect. That isn't the rule.

  2. Question 2

    A married couple filing separately instead of jointly generally:

    • ALoses access to some credits and deductions
    • BPays lower taxes in nearly every case
    • CQualifies for higher Roth IRA income limits
    • DGets double the standard deduction each
    Show answer and explanation

    Answer: A) Loses access to some credits and deductions

    • ACorrect. MFS is usually costlier.
    • BIncorrect. Joint filing usually costs less.
    • CIncorrect. MFS limits are much lower.
    • DIncorrect. Each gets a single-level deduction.

  3. Question 3

    Federal gift tax, when owed, is generally paid by the:

    • ARecipient of the gift, at the time it's received
    • BDonor
    • CIRS
    • DEstate of the recipient
    Show answer and explanation

    Answer: B) Donor

    • AIncorrect. The donor pays.
    • BCorrect. Not the recipient.
    • CIncorrect. The donor pays.
    • DIncorrect. The donor pays.

  4. Question 4

    Restricted stock units (RSUs) are generally taxed:

    • ANever, if the employee holds them for a year
    • BOnly when the shares are eventually sold
    • CAs long-term capital gains at grant, based on the grant-date value
    • DAs ordinary income on the shares' value when they vest
    Show answer and explanation

    Answer: D) As ordinary income on the shares' value when they vest

    • AIncorrect. They're taxed at vesting.
    • BIncorrect. They're taxed at vesting.
    • CIncorrect. That isn't the rule.
    • DCorrect. Later gains are capital gains.

  5. Question 5

    Earnings withdrawn from a 529 plan for nonqualified expenses are generally subject to:

    • ALong-term capital gains tax only
    • BNo tax at all
    • CIncome tax plus a 10% penalty
    • DGift tax
    Show answer and explanation

    Answer: C) Income tax plus a 10% penalty

    • AIncorrect. It's ordinary income plus 10%.
    • BIncorrect. Earnings are taxed and penalized.
    • CCorrect. With certain exceptions.
    • DIncorrect. It's ordinary income plus 10%.

  6. Question 6

    A taxpayer who actively participates in managing rental real estate may deduct up to how much of rental losses against other income, subject to income phase-outs?

    • AUnlimited
    • B$3,000
    • C$100,000
    • D$25,000
    Show answer and explanation

    Answer: D) $25,000

    • AIncorrect. Limits apply.
    • BIncorrect. That's the capital loss limit.
    • CIncorrect. That's where the phase-out begins.
    • DCorrect. The allowance phases out at higher incomes.

  7. Question 7

    A client inherits a traditional IRA and asks whether it gets a step-up in basis. The planner explains that:

    • AIt's taxed as a capital gain
    • BIt gets a full step-up like inherited stock
    • CIt's tax-free to all heirs, since tax was paid when it was earned
    • DIt doesn't, because it's income in respect of a decedent
    Show answer and explanation

    Answer: D) It doesn't, because it's income in respect of a decedent

    • AIncorrect. It's ordinary income.
    • BIncorrect. IRD doesn't.
    • CIncorrect. Withdrawals are taxable.
    • DCorrect. Withdrawals are taxed as income.

  8. Question 8

    Under current law, a Section 1031 like-kind exchange is available for:

    • ACryptocurrency
    • BStocks and bonds
    • CPersonal residences
    • DReal property
    Show answer and explanation

    Answer: D) Real property

    • AIncorrect. Only real property qualifies.
    • BIncorrect. Securities don't qualify.
    • CIncorrect. They don't qualify.
    • DCorrect. Held for business or investment.

  9. Question 9

    S corporation income generally:

    • AIs taxed twice
    • BIs taxed only at the corporate level
    • CIs tax-free
    • DPasses through to shareholders
    Show answer and explanation

    Answer: D) Passes through to shareholders

    • AIncorrect. It passes through.
    • BIncorrect. That's a C corporation.
    • CIncorrect. It passes through.
    • DCorrect. Taxed on their individual returns.

  10. Question 10

    A high-income taxpayer can generally avoid an underpayment penalty by paying, through withholding and estimates, at least:

    • A50% of the current year's tax
    • B110% of the prior year's tax
    • C25% of the prior year's tax
    • DNothing until April 15
    Show answer and explanation

    Answer: B) 110% of the prior year's tax

    • AIncorrect. That isn't enough.
    • BCorrect. The safe harbor is 100% for lower incomes.
    • CIncorrect. That isn't enough.
    • DIncorrect. Estimates may be required.

Tax Planning: FAQs

How much of the CFP exam is Tax Planning?

Tax Planning is 14% of the CFP exam by the official exam guide's weighting, which on a 170-question form works out to roughly 24 questions. The real exam's exact split varies by form.

What does the Tax Planning domain cover?

How individuals and businesses are taxed and how planning reduces the bill: income tax rules, business entities, property transactions and timing strategies.

How should I study Tax Planning for CFP?

Practise working out basis and the character of gain on gifted, inherited and sold property; those rules feed questions here and in estate planning.

Where can I practise more Tax Planning questions?

This page has 10 free Tax Planning questions with answers. The ExamWize CFP question bank has 83 questions in this domain. Every practice exam result breaks your score down by domain, and Review Mode re-drills the questions you missed.

Other CFP topics

Also: 15 free questions across all topics, the CFP cheat sheet and the study guide.

Get Tax Planning exam-ready

The full CFP bank has 83 Tax Planning questions. Timed practice exams match the real exam's length and domain weights, every result shows your score per domain, and Review Mode re-drills the questions you missed.

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Not affiliated with CFP Board; questions are original, written from the official exam outline, and never copied from the real exam.