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Series 62 > Taxation > Flashcards

Flashcards in Taxation Deck (19):

Earned income is salaries, commissions, wages and...

Income from an annuity or pension plan


Investment income includes dividends in common and preferred stock and...

Interest in bonds and bank deposits

(Net investment income is excess of investment income over investment expenses)


Which two types of income are taxed at an individual's tax bracket?

Earned and investment


What does "reciprocal immunity" mean for interest?

States can't tax income from federal government issues and vice versa


What type of state bond is subject to federal tax?

A private activity bond (10% of proceeds used to fund a private entity)
- unless it is qualified, in which case it is subject to Alternative Minimum Tax


Where is income from corporate bonds taxed?



Cash dividends are taxed at a maximum of 20% in year made EXCEPT...

When made from a security which does not pay corporate taxes such as a REIT. These "non-qualified dividends" are taxable as ordinary income


Stock dividends are generally not taxable at receipt, but instead you...

Adjust the cost basis of the securities held for the purposes of calculating capital gains in a disposal


If a shareholder of a stock with a rights offering sells his rights, how are the proceeds treated?

Taxed as ordinary income


Capital assets include stocks, bonds and...



A capital gain/loss is short term if the asset is held for...

One year or less

Otherwise long term


What is FIFO?

Where a customer holds multiple positions and sells some, IRS will use First In First Out to determine which shares sold and the consequent gain or loss


What's the tax treatment of net short-term gains?

Ordinary income at the individual's regular tax bracket
(Long term gains taxed at investor's tax bracket to a maximum of 20%)


On selling a bond, what's the tax treatment of accrued interest received?

Ordinary income (doesn't affect cost basis of bond for capital gains)


Selling a security at a loss and re-buying it is known as a....

Wash sale.

Prohibited 30 days before and after a sale – so IRS will disregard loss when from a wash sale


Who's responsible for tax on investment income of a minor?

Reported on minor's tax return. Above a certain amount per year, may be taxed at parent's tax bracket


The corporate dividend exclusion protects a corporation from taxation on dividend income received. What is the level of protection?

Own >20% of distributing corporation: only 20% of dividends received are taxable
Own <20%: 30% taxable


What's the tax treatment of net short term loss?

Used to offset income to a maximum of $3000 in that year, with any unused carried forward


Can IRA accounts be for a couple?

No such thing as a joint IRA. A spousal account is owned by the named account holder, even if contributions are paid by the spouse.