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Unit 2 > Taxes > Flashcards

Taxes Flashcards

1
Q

What is a cash dividend?

A

Income received from an equity investment

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2
Q

What are three examples of packaged products that receive dividends?

A
  1. mutual funds
  2. closed end funds
  3. ETFs
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3
Q

How are dividends taxed in comparison to other forms of investment income?

A

They are taxed less than other forms like bond interest

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4
Q

What 5 things determine an investor’s annual taxable income rate?

A
  1. salary
  2. wages
  3. commissions
  4. bonuses
  5. royalties
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5
Q

What’s the difference between qualified an unqualified dividends?

A

Qualified tax dividends are taxable at lower rates than non-qualified

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6
Q

What are the three brackets of qualified divident tax rates

A
  1. 0 percent
  2. 15 percent
    20 percent
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7
Q

What two requirements must be met to have qualified tax dividends?

A
  1. distributed by a US corporation or qualfied foreign corporation
  2. investor must meet a specific unhedged holding period
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8
Q

What is required to be consired a qualified foreign corporation?

A

ONE of three requirements:

  1. Incorporate in a US posession including territories
  2. subject to a US tax treaty
  3. dividend=paying security trades on an established stock exchange
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9
Q

What does meeting an unhedged requirement mean?

A

Not having any insurance or option hedges that would prevent investor from experiencing a loss

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10
Q

What dividend tax rate should you assume on the SIE if none is given?

A

15 percent

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11
Q

What are unqualified dividends taxed at?

A

The individual’s federal marginal income tax bracket

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12
Q

What is a marginal tax bracket?

A

tax bracket applied to the last dollar earned

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13
Q

What determines the tax rate of unqualified dividends ?

A

Income tax rate

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14
Q

What dividend rate do mutual funds, common stocks, and preferred stocks pay?

A

Qualified

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15
Q

What specific dividend-paying investment never pays qualified dividends?

A

Real estate investement trust REIT

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16
Q

What is the logic behind REITs always being non-qualified?

A

With a higher income tax rate, REITs must offer higher rates of returns to encourage investors to purcahse units

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17
Q

What tax form are dividends reported on?

A

1099 DIV

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18
Q

At what frequency are dividends reported?

A

annually

19
Q

What tax year will dividends show up in?

A

The year the dividend was paid, not declared

20
Q

When are new shares taxable?

A

Not until they are sold

21
Q

What type of dividend do 1099 DIV not report?

A

stock dividends

22
Q

What taxes are US Gov debt subject to?

A

Federal taxes only

23
Q

What taxes are martgage backed securities subject to?

A

federal, state, and local

24
Q

What taxes are municipal debt subject to?

A

State and local taxes

25
Q

When are municipal debt tax free?

A

If resident or territory bond

26
Q

What taxes are corporate debt subject to?

A

federal, state, and local

27
Q

Define marginal tax bracket

A

tax bracket applied to the next dollar received

28
Q

What tax form is interest reported on?

A

1099 INT

29
Q

What is the tax rate for interest equal to?

A

federal marginal income tax bracket

30
Q

When is a capital gain realized?

A

When customer sells security at a higher price than its original cost

31
Q

What does the cost basis represent?

A

Overall amount paid to buy the security including commission

32
Q

What do sales proceeds represent?

A

Overall amount received to sell a security minus commision

33
Q

What counts as long-term capital gains

A

securities held for more than 12 months not equal to 12 months

34
Q

In what manner are long-term capital gains taxed?

A

Same as qualified dividends
0%, 15%, or 20%

35
Q

What should you assume is tax rate on qualified dividends or long-term capital gains?

A

15%

36
Q

What qualifies a short-term capital gain?

A

Made on securities held for one year or less

37
Q

At what rate are short term capital gains taxed?

A

At investor’s income tax bracket

38
Q

What is the marginal tax bracket?

A

The tax bracket applied to the last dollar earned

39
Q

What form are capital gains reported on?

A

1099 B

40
Q

What are two tax benefits to the deceased?

A
  1. cost basis is stepped up
  2. Holding period is automatically long-term
41
Q

To when is the new cost basis adjusted when someone dies?

A

To the value on the day of the original owner’s death

42
Q

Formula for cost basis?

A

purchase price. + commission

43
Q
A

Unit 2 (18 decks)

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