Tax Considerations

Investors looking to minimize the effects of taxation on their investments would probably receive the least benefit from what type of security?

Corporate bond

The maximum deduction of net capital losses against other income

$3,000. Any remaining loss can be carried forward into the next year

Tax Filling Date - C Corp

15th day of 4th month of following fiscal year

Current Social Security requirements

40 covered quarters of employment (10 years). Payments can be distributed as early as 62, or earlier if disabled.

Taxes on Corporate Dividends

50% are taxable at the given tax rate. For example if a corporate bond has a dividend of 6% per year only 3% is taxable at your tax rate.

Estate taxes must be paid within

9 months of death

Wash Sale

A sale of securities at a loss with the subsequent disallowance of the loss by the IRS. If an individual sells a security at a loss and within 30 days, repurchases substantially the same security, the IRS will consider it a wash sale and will disallow the loss

Gift taxes and estate taxes

Are progressive. They go up as dollar amount goes up.

Maximum tax rate on gifts and estates

Are the same: 40%

Annuity Taxes

Deferred until withdrawn

The interest on private activity municipal bonds

Exempt from federal taxes but subject to Alternative Minimum Taxes (ATM)

tax preference items.

Items that can be taxed under the alternative minimum tax. They include: Deductions taken for accelerated (but not straight-line) depreciation; Excess intangible drilling costs; Capital gains on incentive stock options; and Otherwise tax-exempt interest from specified private activity bonds.

stock received as an inheritance

Long-term holding period - even when the term is actually less than a year.

Tax Filling Due Date: S-Corp, LLC (multi member) and Partnerships

March 15th

Taxes on property when sold

Married couples can exclude the first $500K in gains. Singles can exclude the first $250K in gains

Taxes on Death Benefit of a Life Insurance Policy

Not subject to income tax. However, the death benefit of an annuity is subject to income tax.

Who files a K-1?

Partnerships

K-1

Reports investors earnings, losses and credits on their ownership in S-corps, LLC's, and partnerships. Not send to investors of C-corps

Tax on life insurance

Tax free and proceeds are not included in the taxable estate. However, they are included in the gross estate.

distributable net income (DNI)

Taxable income from a trust that determines the amount of income that may be taxable to beneficiaries.Includes dividends and interest plus capital gains that have not been reinvested back into the trust. capital gains reinvested do not count towards DNI.

income received into a revocable trust is taxable to whom?

The grantor

Gifting securities

The market value at date of gift is used to determine if any gift taxes are due. However, when making a noncharitable gift of securities, the donor's cost basis is passed to the recipient.

Giving Gifts to a Spouse that is not American

There is a limit to this before it is taxed

Step up in basis

Under current tax law, a beneficiary inherits assets at their fair market value as of the time of death.

Redeeming Shares - Cost Basis

When a customer does not choose a method, the IRS uses FIFO (first-in, first-out). This will likely result in shares with the lowest cost basis being redeemed first, which creates a greater taxable gain.

CAPITAL GAINS TAXATION ON DONATED (GIFTED) AND INHERITED SECURITIES

When a donor makes a gift of securities or virtually any asset, the cost basis to the recipient (the donee) is the donor's cost basis, (original cost and holding period beginning from the donor's date of purchase). This describes carryover basis.

Step up in basis

When property is inherited the survivor's cost basis is the fair market value the days the decedent died.

A realized capital gain on a security may be offset by

a capital loss realized from the sale of any type of security.

Taxation of stock dividends

adjust the investor's cost basis and don't get taxed until the stock is sold.

Trustee

an individual or other party holding legal title to property held for the benefit of another person (or persons). The trustee must administer the trust by following directions in a trust agreement or in a will. They are a fiduciary to the beneficiary. They invest the assets in the trust.

Taxes on funds obtained from a policy loan

are not considered taxable income

Qualified dividends

are those eligible for the reduced income tax rates.

Alternative Minimum Tax (AMT)

assessed against high annual income earners and disallows some deductions and exemptions used to calculate adjusted gross income. Can be triggered by accelerated depreciation. A taxpayer must pay the alternative minimum tax in any year that it exceeds regular tax liability.

Upon death, the beneficiary inherits closed-end funds at their

bid price

state-specific municipal bond funds may be subject to what type of tax

capital gains tax - Interest received from municipal bonds and municipal bond funds is generally income tax free on a federal basis, but taxable in states other than the state of issue.

IA responsibility upon client death

continue to manage the account unless the advisory contract called for termination upon death or informed otherwise by the executor

Beneficiary

person for whose benefit property is held in trust

taxes withheld on investments by countries with which the United States has diplomatic relations

result in a tax credit on the U.S investor's tax return

Short-term capital gain

taxed as ordinary income

Settlor/ Grantor/ Donor/ Trustor

the person who supplies the property for the trust. Income received into the trust is taxable to the Grantor.

Progressive taxes

those where the tax rate increases as the amount being taxed increases. The opposite of that is the regressive tax where the rate remains the same regardless of the dollar amount being taxed. Excise taxes, such as those on cigarettes, are a prime example. Whether someone purchases a pack, a carton, or a case, the tax rate is constant.

Regressive taxes

where the rate remains the same, regardless of the cost of the item subject to the tax. For example, if your state has a 6% sales tax, it makes no difference if you are buying an item for $1.00 or one for $10,000, the tax rate is the same 6%