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24 Cards in this Set

  • Front
  • Back
Long Term & Short Term capital gains are taxed at what rate?
Long term capital gains are always 15%.

Short term capital gains are taxed at the full tax bracket rate of the client. Always higher than the long term capital gains tax.
Net losses may be written off against ordinary income up to what amount?
$3,000. The rest of the balance is carried forward.
When net losses exceed $3,000 what happens?
The excess of $3,000 is carried forward to the next year. On the next year's tax return, you first offset the remaining loss versus any gains. Then the remainder of that can be offset against ordinary income up to $3,000 for individuals.
Define holding period.
The holding period is the length of time an investor has owned the stock. This has tax implications.
How does the IRS determine the holding period?
An investor can denote on his order ticket which shares he intends to sell. If he does not

The IRS uses FIFO - first in first out - to determine the holding period. Therefore the oldest shares the investors owns will be sold first.
Investors can not accumulate a holding period on what kind of position?
A short position.

No matter how long you have held the short position. When you cover that position, the position is going
US citizens trading foreign securities are still subject to what?
Fed, state, and local taxes
What rate are cash dividends taxed at? How many dollars are taxed this way?
The entire cash dividend no matter how big or small is taxed at 15%.
Foreign companies generally do what to dividends for US customers?
Withhold a percentage of US taxpayers taxes.

The customer can use the withheld amount as a tax credit or itemized deduction. The part not withheld will be taxed at 15%.
Stock dividends are not treated as ordinary income. They are used to do what?
Reduce an investor's basis. It works like this:

If an investor originally paid $15.00 per share for 100 shares of ABC and ABC has a 15% stock dividend.... The investor now has to act like he paid less for the shares.

$1500 ( total amount paid) / 100 +15 (100 shs + 15% of 100 shs)

$1500/ 115 shares = $13.04

The investor now has a $13.04 basis. So he has a greater chance of making a capital gain and pay taxes.
Wash sale rule
You can't take a loss on your taxes if you purchase back the same security or another that make the same security (call option, converitble bond or preferred stock.)

If you do purchase one of the above, the loss you wanted to take this year gets POSTPONED until you sell the above security.

The way they do this is by adding your intended loss to the security that you just bought (one of the above)
Talk about how corporations are taxed on dividends.
While individuals have to pay taxes on 100% of their dividends, corporations only pay taxes on 30% of their dividend income. The other 70% is excluded.

Income from REITS DO NOT QUALIFY FOR THE EXCLUSION. 100% of the REIT income is taxable.
Regressive vs Progressive taxes
Regressive taxes are the same for everyone. This makes it harder on those that have less money.

Ex. Sales and gasoline taxes

A Progressive tax is a tax rate that increases as income increases. Making the richer harder hit.

Ex. Income, gift, and estate taxes.
Holding period on equity options:
The holding period on stock puchased by exercising a call begins ON THE DATE THE CALL IS EXERCISED.
Earned income is:
Earned income is income generated from providing goods and services (paycheck) but it does not include annuities or pensions.
Ordinary Income is:
Ordinary income is earned income, dividends, and interest. It is fully taxable with no offset privileges.
The cost basis of a bond is:
The original price paid for the bond. It DOES NOT INCLUDE THE BONDS ACCRUED INTEREST.
What is AMT?
What tax preference items are subject to AMT?

Addidas Ipop
Addidas Ipop
Addidas Ipop
Addidas Ipop
AMT is the alternative minimum tax. It is designed to recoup taxes from those who may be exempt from tax.

Tax preference items subtject to AMT are:

Accelerated Depreciation
Depletion
Intangible drilling
Incentive stock option plans
Securities gift giving
The recipient of a gift also receives the holding period of the donor. If the donor held it for 3 years prior to giving it to you, upon receiving it you get to act as if you held it for 3 years.

When selling a gifted security at a profit, you must use the cost basis of the donor. If he bought at $60.00 and gave to you at $75.00 and you sold at $90.00 you have to report the entire profit of $30.00

If you sell at a loss, you don't get to use the donor's basis. You have to use the basis at the time of the gift. If the donor bought at $60, gave to you at $40, and you sold at $20.00, you only get to claim a loss of $20.00 (40-20)!

So you get screwed in reporting when it comes to receiving securities as gifts.
Inheriting securities
When you inherit securities and sell the securities AS A PROFIT, the IRS allows a step up from the original price the dead person paid.

So you don't get screwed on the capital gains side when people die.
What are three forms of appreciation?
-----Straight Line
-----Double Declining
-----Modified Accelerated Cost Recovery
WHAT IS NOT A TYPE OF DEPRECIATION?
AMORTIZATION IS NOT A FORM OF DEPRECIATION.
Define portfolio income
CAPITAL GAINS
dividends
interest

All three are portfolio income
Investors canb shelter income by investing in the following:
Variable annuities - def. inc.
IRAs - deferred income
Keogh Plans - deferred income
Municipal bonds - tax free inc.