Unit 21

Unified estate tax credit

A certain amount of assets that each person is allowed to gift to other parties without having to pay gift, estate, or generation-skipping transfer taxes.

168.75 (Because the purchase and sale were of different lots, you must compute the net proceeds on a per share basis. Dividing the cost of $93 + commission of .25 ($50 ÷ 200 shares) gives you a total per share cost of $93.25. Selling for $96.00 - 0.50 ($50 ÷ 100 shares) = $95.50 proceeds per share. $95.50 - $93.25 = $2.25. $2.25 multiplied by 100 shares sold = $225.00. In a 25% tax bracket, this is a taxable short-term gain and 25% of $225.00 = $56.25. Therefore, her after-tax net was $168.65 ($225 - 56.25).)

A customer in the 25% tax bracket bought 200 shares of ABC at $93 per share plus commission of $50. Considering the customer's cost basis, when she sold 100 shares six months later at $96 per share, less commission of $50, her after-tax net was

31

A customer must wait how many days after they sold a bond at a loss before they can buy back a substantially identical bond and not have the sale identified as a wash sale?

Generation Skipping Trust

A form of bypass trust that is designed to have assets pass to grandchildren (or great-grandchildren) in order to "skip" a generation of estate tax.

500,000, 2

A married couple pays no tax on the first $__________ of net profit realized on the sale of a primary residence that has been occupied for at least ___ of the past 5 years.

250,000, 2

A single person pays no tax on the first $__________ of net profit realized on the sale of a primary residence that has been occupied for at least ___ of the past 5 years.

Simple Trust

A trust that accumulates income and distributes it to its beneficiaries on an annual basis.

Complex Trust

A trust that accumulates income over time and is not required to make scheduled distributions to its beneficiaries.

Income, estate

Although death benefits from life insurance policies are always free of ___________ tax, they may be subject to ____________ tax.

Bypass trust

An estate planning device whereby a deceased spouse's estate passes to a trust as a life estate for the surviving spouse rather than entirely to the surviving spouse, thereby reducing the likelihood that the surviving spouse's estate will be subject to federal estate tax.

The grantor

Any distributed income out of a revocable trust is taxable to...

15,000, 11.2

Any gift in excess of $______________ to a grandchild or sibling is taxable unless the donor elects to us either excess against the lifetime exclusion, which is $____ million.

Form 1041

Any income received by an estate before it is liquidated is reported on what form?

Dividend, dividends

Corporations (C corps) have a 50% ________________ exclusion on _______________ received from other companies.

Other companies

Corporations (C corps) have a 50% dividend exclusion on dividends received from _________________.

50

Corporations (C corps) have a ___% dividend exclusion on dividends received from other companies.

Alternative Minimum Tax (AMT)

Created by Congress to make it more difficult for wealthy individuals to avoid paying taxes through the use of various deductions.

Qualified

Dividends from common stock are ________________ (qualified/non-qualified).

Qualified

Dividends from equity mutual funds are ________________ (qualified/non-qualified).

Qualified

Dividends from preferred stock are ________________ (qualified/non-qualified).

Non-qualified

Dividends on REITs are ______________ (qualified/non-qualified).

Non-qualified

Dividends on bond funds are _________________ (qualified/non-qualified).

Non-qualified

Dividends on money market funds are ________________ (qualified/non-qualified).

9

Estate tax is due ___ months after death.

6

Estates may be valued either at the date of death or ___ months later using the alternative valuation option.

Charity

Gifts to _____________ (recognized by 501(c)(3)) are never subject to the gift tax.

6

How many months after death is the alternative valuation option for estates?

Interest on a private purpose municipal bond. (If more than 10% of a bond's proceeds go to private entities, the interest on the bond is a tax preference item for alternative minimum tax purposes.)

If a high-income taxpayer is subject to AMT, what must be added to adjusted gross income to calculate his tax liability?

152,000

If an individual wishes to make a gift to a non-citizen spouse, there is a $______________ limit that will not incur gift tax.

10

In order for an individual to receive Social Security benefits based on the earnings of the ex-spouse, the couple must have been married for at least ___ years prior to the divorce.

40

In order to be fully eligible for Social Security, a client must have a minimum of ___ covered quarters of employment.

Schedule C

Income from a sole proprietorship is reported on...

Distributable Net Income (DNI)

Income from a trust that determines the amount of income that may be taxable to beneficiaries. This is ALL investment income (i.e. taxable interest, tax-exempt interest, and dividends, but NOT reinvested capital gains). The tax-exempt income still remains non taxable.

The grantor

Income received into a revocable trust, whether distributed or not, is taxable to who?

Long term capital gains (even if bought by deceased less than a year ago)

Inherited stocks are always treated as ___________ for tax purposes.

Federal, state, and local

Interest on foreign bonds are taxed at which levels?

Alternative minimum

Interest paid on private activity municipal bonds are exempt from federal taxation, but might be subject to the ____________________ tax.

1,100,000

Mr. Wright died with the following assets and liabilities: $200,000 in securities left to his wife, a $650,000 home left to his wife (the home cost $150,000), a $250,000 life insurance policy with his daughter as beneficiary, and $75,000 in debts and estate expenses. What is Mr. Wright's gross estate?

Private activity municipal bonds

Muni bonds that are used to attract private investment for projects that may have some public benefit.

Closed-end

Only in a ________________ company can a stock's ask price be lower than its NAV.

6

Property included in the gross estate of an individual is generally valued at its FMV on the date the deceased died. An estate can also elect to value property on the alternate valuation date, which is usually ___ months after the date of death.

Long-term capital gains

Qualified dividends are taxed as...

62

Reduced retirement benefits for Social Security can begin as early as age ___, however disability payments can begin much earlier, as long as there have been 40 covered quarters.

Including

Regarding social security benefits of a married couple, when 50% of their benefits added to their overall income, ______________ (including/excluding) tax-exempt interest, exceeds $32,000, their benefits become subject to income tax.

25,000

Regarding social security benefits of a single individual (not married), when 50% of their benefits added to their overall income, including tax-exempt interest, exceeds $___________, their benefits become subject to income tax.

32,000

Regarding social security benefits of married couples, when 50% of their benefits added to all other income, including tax-exempt interest, exceeds $___________, their benefits become subject to income tax.

POP

Shares of a fund are bought at the (POP/NAV)

NAV

Shares of a fund are redeemed at (POP/NAV)

less

The effective tax rate is always _________ (more/less) than the marginal tax rate.

11.2

The lifetime exclusion for gifting free of gift tax is $___ million.

Gifts

The maximum tax rate on estates is the same as the maximum tax rate on __________________.

Estates

The maximum tax rate on gifts is the same as the maximum tax rate on __________________.

Effective

The overall rate paid on a taxpayer's total taxable income and is always LESS than the marginal tax rate.

Ask price

The price at which a dealer or other trader will sell a security...AKA the price YOU are able to BUY your security at.

Marginal tax rate

The rate of taxation on any additional taxable income received.

Schedule C

The self-employment IRS form.

Progressive tax

The tax rate increases as the amount being taxed increases. This is the type of tax that embodies personal income tax, estate tax, and gift tax.

Regressive tax

The tax rate remains the same regardless of the dollar amount being taxed.

Alternative Minimum Tax

The use of accelerated depreciation could potentially result in the taxpayer paying ____________________.

Ordinary income (you can net any amount of capital losses against capital gains)

There is a $3,000 limit on how much capital losses can be used to offset ____________.

60,000 (15k FROM both the mom and the dad TO both the son and his wife)

Under current tax law, how much can a married couple give to their adult son and his wife without incurring a gift tax obligation?

Unlimited amount

Under the current gift tax marital deduction, how much can an individual give a spouse who is a US citizen without incurring a gift tax?

income, estate

Unlike death benefits from an annuity, death benefits from life insurance policies are not subject to ____________ tax, but may be subject to ___________ tax.

The limit does not exist

What is the limit of passive losses that can be taken against passive income in a given year?

15,000 (30k if married)

What is the maximum gift an individual (unmarried) can give annually without incurring a gift tax obligation?

11.4

What the amount (in 2019) of estate that is exempt from taxation?

Closed-end

What type of fund can have an ask price (the price at which the client can buy shares for) that is less than NAV?

Stepped- up to the value at the date of inheritance

When a beneficiary inherits a stock, its cost basis is ______________________.

FIFO

When a customer sells stock, but does not specify which shares were redeemed, what method does the IRS use to determine cost basis?

D

When a stock gift is given, what cost basis and holding period is used? A) Her date of purchase is used, but the cost basis is from the date of the gift. B) Her cost basis is used, but the holding period begins on the date of the gift. C) Both the cost basis and holding period are determined from the date of the gift. D) Her cost basis and date of purchase is used.

Sole Proprietorship

Which form of business is taxed on its income?

Bid price

the price at which a dealer or other trader is willing to purchase a security...AKA what YOU are able to SELL your security at.