Unit 15

Which of the following offers the opportunity to realize a capital gain rather than ordinary income? A) Section 529 plans B) Deferred annuities C) Cash dividends D) Stock dividends

D

There are many sources of taxable income to an individual. Included might be money received from which of the following? Sole proprietorship Subchapter S corporation Investments Life insurance death benefit

1, 2, and 3

An example of an interest-on-interest reinvestment program is A) reinvesting the dividends distributed on a bond fund. B) interest left to compound on a bank-insured certificate of deposit. C) reinvesting the interest received on a bond. D) reinvesting the earnings on a bond UIT.

B

An investor has made the following purchases, all in the same calendar year: 100 ABC at $20 on January 15; 200 ABC at $25 on April 4; and 100 ABC at $30 on July 23. With ABC currently selling at $22, if this investor needed to sell 200 ABC, the best decision from a tax standpoint would probably be to

use LIFO

Many corporations make available dividend reinvestment plans for their shareholders. Among the benefits of using DRIPS are allowing the investment to compound. discounts from the current market price. reduced taxation. the ability to accept the dividend in cash or in additional shares of stock.

1 and 2

You have a client who was divorced three years ago, maintains a home, and has custody of the children. More than likely, the most advantageous tax filing status for your client is

head of household

An investor would have to pay the alternative minimum tax when

it exceeds the investor's regular income tax

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

168.75 93 + (50/200) = 93.25 96 - (50/100) = 95.50 2.25*100*.75 = 168.75

Last year, an investor had a $5,000 loss after netting all realized capital gains and losses. This year, the investor has a $1,000 capital gain. After netting his gains and losses, what will be his tax situation this year? A) He will offset $1,000 ordinary income this year. B) He will have a $1,000 loss to carry over to the next year. C) He will have a $1,000 gain. D) There will be no tax consequences.

A

One of the benefits of owning a home is the tax treatment of a sale of a primary residence. Under current IRS regulations, A) a married couple is permitted to exclude the first $500,000 of gain. B) a married couple is permitted to exclude the first $250,000 of gain. C) a married couple is permitted to exclude the first $500,000 of gain as long as the proceeds are reinvested in another home. D) all gains from the sale of a primary residence are excluded from taxation.

A

If a high-income taxpayer is subject to the AMT, which of the following preference items must be added to adjusted gross income to calculate his tax liability? A) Interest on a private-purpose municipal bond B) Interest on a general obligation municipal bond C) Distributions from a corporate bond mutual fund D) Dividends paid on preferred stock

A also excess intangible drilling costs, ISO bargain element, and accelerated depreciation

A number of corporations offer dividend reinvestment plans (DRIPs) where the client's dividends are automatically reinvested in additional shares of the issuer. In the case of a company that pays dividends with some degree of regularity, if the market price per share has declined over the year, an investor participating in one of these plans would find which of the following to be true (assume no splits)? A) There are fewer shares in the investor's account. B) There are more shares in the investor's account. C) The value of the investor's account has gone down. D) The value of the investor's account has gone up.

B

Investors looking to minimize the effects of taxation on their investments would probably receive the least benefit from A) a growth stock. B) a corporate bond. C) an apartment building. D) an S&P 500 Index fund.

B -- interest income is not good for tax

Many different investments offer the opportunity to reinvest income. If one were to compare the difference between interest-on-interest reinvestment plans and dividend and capital gain reinvestment plans, A) in the case of dividend and capital gains reinvestment plans, taxes are deferred until liquidation. B) in the case of interest on interest plans, taxes are deferred until liquidation. C) in both plans, all income is taxable in the year received, whether reinvested or not. D) in both cases, all income is deferred until liquidation.

C

If an investor is in the highest federal income tax bracket and is subject to the alternative minimum tax, which of the following securities should an agent recommend? A) Treasury bond B) Corporate bond C) General obligation bond D) Industrial revenue bond

C - muni

Your customer redeemed 200 of her 500 Kapco common shares without designating which shares were redeemed. Which of the following methods does the IRS use to determine which shares she redeemed?

FIFO