CFP Tax Flashcards
Learn (23 cards)
What is the first step in the tax formula?
Income (from whatever source derived)
What comes after Income in the tax formula?
Minus: Exclusions
➜ This gives you Gross Income
How is Adjusted Gross Income (AGI) calculated?
Gross Income
Minus: Deductions for AGI
➜ This gives you Adjusted Gross Income
What deductions are subtracted from AGI to get Taxable Income?
Greater of standard deduction or itemized deductions
Qualified Business Income (QBI) deduction
What comes after Taxable Income?
Apply Tax Rates (from tax tables)
➜ Gives you Gross Tax
How is Final Tax Due calculated?
Gross Tax
Minus: Tax Credits
➜ Gives you Final Tax Due
How do you get to ‘Net Tax Payable or Refund Due’?
Final Tax Due
Minus: Prepayments (withholding and estimated payments)
➜ Net Tax Payable or Refund Due
What is AGI and why is it important?
AGI = Gross income minus deductions for AGI.
It determines eligibility for many tax benefits and limitations.
What is Taxable Income?
AGI minus deductions from AGI (standard or itemized, and QBI).
➜ It’s the amount used to apply the tax rate.
What’s the difference between Gross Tax and Final Tax Due?
Gross Tax = What you owe before credits
Final Tax Due = Gross Tax minus Tax Credits
What’s a good way to approach learning the tax formula for the CFP exam?
Start top-down (big picture flow) → then drill into the details like deductions, exclusions, and credits.
“Know the flow… get the points!”
What is a tax exclusion?
A source of income that is not taxed and is omitted from the tax base under the law.
Is municipal bond interest taxable?
No, it’s excluded from gross income.
Are employer-paid health insurance premiums taxable?
No, employer-paid premiums for accident and health plans are excluded from income.
Are gifts and inheritances taxable?
No, they are excluded from the recipient’s income.
Are scholarship amounts taxable?
Generally no, if used for qualified education expenses (tuition, fees, etc.).
Is the gain on the sale of a personal residence taxable?
No, up to $250k (single) or $500k (MFJ) is excluded if ownership/use tests are met.
Are adoption assistance and death benefits taxable?
No, both are excluded from gross income.
What is the exclusion for employer-provided educational assistance?
Up to $5,250 per year is excluded from income.
Is employee lodging or meals taxable if provided by the employer?
No, if it’s for the employer’s convenience and on premises, it’s excluded.
Are Series EE or I bond interest amounts taxable if used for education?
No, they are excluded when used for qualified education expenses.
Are child support and post-2018 alimony payments taxable to the recipient?
No, they are excluded from income.
What’s a mnemonic to remember common tax exclusions?
“DADS MADE PACIFISM” or “MEDICAID’S FAD MAPS” (optional acronyms provided in the material).
