HS328-13

Individuals with large amounts of __________ income or large _________may be subject to the alternative minimum tax (AMT)

tax-sheltered / itemized deductions

Only single taxpayers with incomes up to $_____ and married filing jointly taxpayers with income less than $_____ may take a FIFTY PERCENT retirement savings contribution credit for the first $2,000 contributed to qualified accounts, such as IRAs, 401(k)s, and 403(b)s.

17,750 / 35,500 (around the price of the villa, for joint, half of that for single)

one should hold FIXED RETURN SECURITIES in tax-QUALIFIED accounts because the INTEREST INCOME would normally be taxed as ordinary income.

Fixed return securities (bonds) are best for Jean's IRA. (The MYG annuity is a bond equivalent, so we're good)

For many people, a portion of their income is taxed at one rate, and the rest is taxed at another rate. The marginal tax rate is the _____ rate that you are taxed.

HIGHEST

Fixed-income investments pay interest, which is taxed as ordinary income, should be held in tax-deferred accounts since it allows the interest payments to be tax- deferred and it does not change the marginal tax rate at which this income is taxed.

Income to qualified accounts

The proportion of annuity payments that is taxable depends on the interest rate and the life expectancy of the individual buying the annuity.

LE-IR

Net unrealized appreciation (NUA) is the difference between the market value and the cost basis of an employer's stock that is distributed from a tax-qualified account.

MAVA-COBA

Using the NUA strategy, individuals can take a distribution of employer's stock from their qualified plans and pay ordinary income tax ONLY ON THEIR BASIS at the time of distribution, allowing for continued tax deferral on the balance of their shares. The difference between the basis and the fair market value at distribution— (the NUA) — is taxed at long-term capital gains rates when the stock is eventually sold, regardless of the holding period.

NUA strategy: 1) Take distribution of stock now and pay ORDINARY TAX on the cost basis of $10,000 (30%) 2) When sold, the appreciation (difference between CB & FMV) is taxed at capital gains rate (15%) = total tax $16,500.

Capital losses in an IRA account can be deducted under certain conditions if they exceed 2 percent of AGI.

TWO PERCENT of AGI

Average tax rate = Total taxes paid/Total income

atr = ttp/ti

The _____ tax rate has no relevancy in financial decision making. It is useful in preparing budgets, but it is a descriptive number, not a financial planning number.

average (it is ONLY average information, not accurate information)

If the amount of foreign taxes paid is low enough, an investor may automatically take a tax _____ for the full amount of foreign taxes paid.

credit

equity investments in ordinary accounts

equity to NQ accounts

Look in a table of federal income tax rates to determine your _____tax rate!

marginal

The relevant number that the financial planner needs when analyzing the impact of taxation on investment decisions is the ______ tax rate, the rate at which incremental income is taxed.

marginal

When making financial decisions, investors always need to be aware of their ______tax rate.

marginal

the ______ tax rate that is CRITICAL for current financial decisions.

marginal