Taxes

Question 1

Earned Income

Answer 1

• income earned from salaries/wages
• bonuses/royalty’s
• SS and retirement benefits still taxed as earned

Question 2

Earned Income max tax rate

Answer 2

37%, progressive rate

Question 3

Portfolio Income

Answer 3

• divided into investment income and capital gains

Question 4

Portfolio Income/ Investment Income

Answer 4

• dividends received from stock
• interest received from debt investments
• expenses associated with the income are only deductible to the extent of inv income

Question 5

Max Tax Rate on dividends received from corporate stock

Answer 5

15%

- if an individual is in a higher tax bracket, 20%

Question 6

Portfolio Income/ Capital Gain

Answer 6

• gains realized from sales of asset

- capital losses are only deductible to the extent of the capital gain

Question 7

Max Net Capital Loss Deduction Per Year

Answer 7

$3,000

Question 8

Net Short Term Capital Gains Tax Rate

Answer 8

• regular bracket

- 37%

Question 9

Net Long Term Capital Gains Tax Rate

Answer 9

• longer you hold, lower the tax rate
• 15% or 20% if high income
• all capital losses may be deducted

Question 10

Passive Income

Answer 10

• income received from REITs and limited partnership interests
• expenses are ONLY deductible against passive income

Question 11

Progressive Tax

Answer 11

Tax rate increases progressively as one’s income increases

Question 12

Regressive Tax

Answer 12

• any tax that is based on a flat tax rate

Question 13

Tax dividends received from common stock and dividends are taxable when

Answer 13

the year they are received

Question 14

Cost Basis

Answer 14

Price paid for stock including commissions or markups

any capital gain or loss is deducted from cost basis

Question 15

Form 1099B

Answer 15

• Sales proceeds when a position is sold
• cost basis
• whether gain or loss is long term or short term
• taxes witheld by broker dealer on capital gains

Question 16

Cost basis ___ for stock splits

Answer 16

adjusts for stock splits

Question 17

Cost basis ___ for stock dividends

Answer 17

adjusts for stock dividends, NOT CASH DIVIDENDS!

Question 18

Cost basis for stock splits/ dividends is or is not taxable in that year as income

Answer 18

is not taxable as income in that year

Question 19

Interest received on us government or us foreign bonds is

Answer 19

taxable in the year received

Question 20

Cost basis of a bond

Answer 20

purchase price plus any commission paid

Question 21

Accretion

Answer 21

every year the portion of discount that has been earned is included as taxable interest income and the bonds cost basis is increased by that amount

Question 22

Ammortization

Answer 22

every year the portion of the premium paid is written off against taxable interest income and the bonds cost basis is reduced

Question 23

Trading of market bonds

Answer 23

• option of amortizing premium

- option of accreting discount

Question 24

TIPS upward principal

Answer 24

if principal amount of bond is adjusted upwards for inflation, the adjusted amount is treated as taxable income in the year of adjustment

Question 25

TIPs downward principal

Answer 25

if principal amount is adjusted downward for deflation, the adjusted amount is treated as deductible expense in the year of the adjustment

Question 26

Expenses with holding municipal bonds

Answer 26

are not deductible

Question 27

Municipal yields are ___ than corporate yields

Answer 27

lower

Question 28

Equivalent taxable yield

Answer 28

= tax free yield / 100% - tax bracket

Question 29

Equivalent tax free yield

Answer 29

= taxable yield * (100% - tax bracket)

Question 30

For new issue municipal discount

Answer 30

discount must be accreted on a straight line basis over the life of the bond
- redemption at par no capital gain or loss

Question 31

Annual accretion amount on new issue muncipal bonds issued at discount is

Answer 31

non taxable municipal interest income

Question 32

For new issue municipal bonds issued at premium

Answer 32

discount must be amortized on a straight line basis over the life of the bond

Question 33

Annual amortization amount for municipal bonds issued at a premium

Answer 33

reduces non taxable interest income yearly and reduces the bonds cost basis for tax purposes

Question 34

if a customer has a loss on a position

Answer 34

• must sell the security to deduct capital loss in that tax year

Question 35

wash sale

Answer 35

sale at a loss with repurchase the security 30 days later
loss deduction is disallowed
wait 31 days

Question 36

The equivalent positions that will cause the sale of a security at a loss to be disallowed under the “wash rule” rule are:

Answer 36

• buy a security convertible into that stock within 30 days
• buy a call option, right, or warrant within 30 days
• sell a deep in the money put on that security within 30 days

Question 37

New Cost Basis of A wash sale

Answer 37

New Cost + Disallowed Loss

Question 38

NewSales Proceeds of a repurchase sale

Answer 38

New Sales Amount - Disallowed Loss