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33 Cards in this Set
- Front
- Back
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27. If Jim invested $100,000 in an annual-dividend paying stock today with a 7 percent return, what
investment time period will give Jim the greatest after-tax return? A. 1 year B. 5 years C. 10 years D. 20 years E. All yield the same after-tax return |
E
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28. Which of the following types of interest income is not taxed as it is earned?
A. interest from savings accounts B. original issue discounts on corporate bonds C. accrued market discount on bonds D. interest from money market accounts E. All of the above |
C
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29. Nontax factors investors should consider when choosing between investments include:
A. before-tax rates of return B. after-tax rates of return C. liquidity needs D. A and B E. A and C |
E
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30. What rate should be used when calculating the after-tax future value of investments with a constant rate
of return that is taxed annually? A. annual before-tax rate of return B. annual after-tax rate of return C. marginal tax rate D. preferential tax rate E. average tax rate |
B
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32. One primary difference between corporate and U.S. Treasury bonds is:
A. Treasury bonds always pay interest periodically B. Corporate bonds always pay interest periodically C. Interest from Treasury bonds is exempt from federal taxation D. Interest from corporate bonds is exempt from state taxation E. None of the above |
A
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33. The amount of interest income a taxpayer recognizes when he redeems a U.S. savings bond is:
A. the excess of the taxpayer's basis in the bonds over the bond proceeds B. the bond proceeds C. the excess of the bond proceeds over the taxpayer's basis in the bonds D. the taxpayer's basis in the bonds E. None of the above |
C
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34. Which of the following is not a tax advantage of a Series EE Saving Bond?
A. taxes are paid as the original issue discount on the bond is amortized B. interest earned is exempt from state taxation C. taxes are deferred until the bond is cashed in at maturity D. interest is exempt from federal taxation when used for qualifying educational expenses E. None of the above |
A
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35. When a bond is purchased in the secondary bond market at a discount, the amount of discount treated as
interest income when the bond is sold prior to maturity is the: A. market premium B. market discount C. accrued market premium D. accrued market discount E. None of the above |
D
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37. Which of the following portfolio investments is incorrectly characterized (Investment - Income Type -
Timing of Taxation - Tax Rate)? A. Growth stock - appreciation in capital assets - current - capital gains B. Municipal bonds - tax-exempt income - never - zero C. Savings account - taxable interest - current - capital gains D. A and C E. B and C |
D
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38. When selling stocks, which method of calculating basis provides the greatest opportunity for minimizing
gains or increasing losses? A. LIFO B. FIFO C. Weighted average D. Specific identification E. None of the above |
D
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42. The netting process for capital gains (losses) with 15 percent, 25 percent, and 28 percent capital assets
helps maximize the tax benefit of: A. current year net loss in the 25 percent rate group B. net short-term capital losses C. long-term capital loss carryovers D. A and C E. B and C |
E
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43. When the wash sale rules apply, the realized loss is:
A. recognized at time of sale B. not recognized at time of sale C. recognized at time of sale and added to basis of the newly acquired stock D. not recognized at time of sale and added to basis of the newly acquired stock E. not recognized at time of sale and subtracted from the basis of the newly acquired stock |
D
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44. The maximum amount of net capital losses individuals may deduct against their ordinary income per year
is: A. $3,000 B. $5,000 C. Zero, losses are not deductible D. There is no maximum. All losses are allowed to be deducted. E. None of the above |
A
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48. If an individual taxpayer's marginal tax rate is 35 percent and he holds the following assets for more than
a year, which gains will be taxed at the highest rate at the time of sale? A. gains from investment land B. gains from personal-use property C. gains from a coin collection D. gains from the sale of qualified small business stock held for 3 years E. gains attributable to tax depreciation taken on real property |
C
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49. The longer the holding period on growth stocks, ____________ the after-tax rate of return.
A. the lesser B. the greater C. there is no difference between |
B
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50. Tom, from Nebraska, and Jill, from Missouri, recently got married. To earn a decent return on all their
wedding gifts, they decide to invest in some municipal bonds issued by the state of Missouri. Assuming they both qualify as Missouri residents, the bond interest Tom and Jill earn will be subject to the following taxes: A. federal income taxes only B. federal and Missouri state income taxes C. Missouri state income taxes only D. Nebraska state income taxes only E. None of the above |
E
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51. When 529 plan distributions are not used for qualified higher education expenses, these distributions are
subject to an additional penalty of: A. 5% B. 10% C. 15% D. 25% E. None of the above |
B
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55. Maximum yearly contributions per beneficiary to Coverdell Savings Accounts are limited to:
A. $1,500 B. $2,000 C. $5,000 D. No limit on amount you contribute yearly E. None of the above |
B
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57. Which of the following is not an example of the conversion tax planning strategy?
A. selling corporate bonds to purchase growth stocks B. selling U.S. Treasury bonds to purchase municipal bonds C. cashing in a certificate of deposit to purchase a stock paying qualified dividends D. withdrawing funds from a savings account to purchase a qualified small business stock E. None of the above |
E
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58. Life insurance policies have nontax factors that limit their desirability as an investment vehicle. Some of
these factors include: A. waiting for the insured individual's death B. low expense to return ratios C. high commission costs D. A and B E. A and C |
E
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59. John holds a taxable bond and a municipal bond. Which fees are considered part of John's investment
expense? A. attorney and accounting fees on municipal bond B. safe deposit box rental fees on taxable bond C. interest expense on taxable bond D. A and B E. B and C |
B
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60. Bill would like some tax benefits for his investment expenses incurred this year. His AGI is $190,000.
Currently, his expenses consist of: (1) $1,000 investment advice fees, (2) $1,500 unreimbursed employee business expenses (a miscellaneous itemized deduction), and (3) $600 tax return preparation fees. How much more, if any, must Bill spend for investment expenses this year before he receives any tax benefit? A. Zero, Bill is already receiving a benefit B. More than $500 C. More than $700 D. More than $900 E. None of the above |
C
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61. When calculating net investment income, gross investment income includes:
A. interest income B. net short-term capital gains C. net long-term capital losses D. royalty income E. All of the above |
E
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62. Unused investment interest expense:
A. expires after the current year B. is carried back two years C. is carried forward twenty years D. is carried forward indefinitely E. None of the above |
D
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64. Investment expenses treated as miscellaneous itemized deductions do not include:
A. expenses incurred to generate tax-exempt income B. investment interest expense C. expenses for investment advice D. A and B E. B and C |
D
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65. Investment interest expense does not include:
A. interest expense from loans to purchase municipal bonds. B. interest expense from loans to purchase corporate bonds. C. interest expense from loans to purchase stocks. D. A and B E. B and C |
A
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66. Assume that Joe has a marginal tax rate of 35 percent and decides to make the election to include
long-term capital gains and qualified dividends as investment income. What rate must Joe use when calculating the tax on these two items? A. 15% B. 25% C. 28% D. 35% E. None of the above |
D
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69. What is the correct order of the loss limitation rules?
A. tax basis, at-risk amount, passive loss limits B. at-risk amount, tax basis, passive loss limits C. passive loss limits, at-risk amount, tax basis D. tax basis, passive loss limits, at-risk amount E. passive loss limits, tax basis, at-risk amount |
A
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71. Which taxpayer would not be considered a material participant of an activity?
A. taxpayer materially participated in the activity for any five of the preceding ten years B. taxpayer participated on a regular, continuous, and substantial basis last year C. taxpayer participated 95 hours last year and participation is not less than any other participants for the year D. taxpayer participated in the activity for 995 hours last year E. None of the above |
C
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72. Generally, which of the following does not correctly categorize the type of income?
A. rental real estate - passive income/loss B. salary - active income/loss C. dividends - portfolio income/loss D. capital losses - passive income/loss E. All of the above |
D
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74. The rental real estate exception favors:
A. lower income taxpayers (AGI less than $80,000) B. middle income taxpayers (AGI greater than $80,000 and less than $150,000) C. upper income taxpayers (AGI greater than $150,000) D. A and B E. B and C |
D
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75. On the sale of a passive activity, any suspended losses cannot be used to offset income from:
A. other passive activities B. capital gains C. interest income D. wages and tips E. None of the above |
E
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76. A taxpayer's at-risk amount in an activity is increased by:
A. a reduction in the amount of debt related to the activity that the taxpayer is responsible for paying B. cash contributions to the activity C. cash distributions from the activity D. A and B E. A and C |
B
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