Unit 15

An example of an interest on interest reinvestment program is

Interest left to compound on bank-insured certificate of deposit

The amount of federal income tax a US Citizen residing in the country will pay its dependent on all of these except: gender, filing status, state of residence, age

Gender

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

General obligation bond

You are working with a client who received her divorce earlier this year. She has two young children, ages four and seven, who both live with her. In general, it would be most advantageous for the client to file her federal income tax claiming what status?

Head of household

Many corporations make available dividend reinvestment plans (DRIPS) for their shareholders. Which of the following are among the benefits of using DRIPS: I. Allowing the investment to compound, II. Discounts from the current market price, III. Reduced taxation, IV. The ability to accept the dividend in cash or in additional shares of stock

I and II

The alternative minimum tax (AMT) becomes a consideration when a taxpayer has so-called tax preference items. Included in that definition is

Interest from private activity bonds (bond issued to certain facilities such as airports, sports facilities, and hospitals)

Each of the following could cause an investor to be subject to the alternative minimum tax EXCEPT: interest received on school district GO Bonds, accelerated depreciation taken on certain property, interest received on private activity municipal bonds, excess intangible drilling costs

Interest received on school district GO bonds

An investor purchases 100 shares of ABCE common stock at $70 per share. Thirteen months later, the stock is sold when the market price is $50 per share. Which of the following activities made 20 days after the sale of the stock at $50 per share would NOT violate the wash sale rule

Purchasing the ABCE put option

Using industry jargon, the tax on the last dollar of income is at

The marginal rate

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

in both plans, all income is taxable in the year received, whether reinvested or not

A number of corporations offer dividend reinvestment plans (DRIPS) where the clients 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 and assuming no splits, an investor participating in one of these plans would find which of the following to be true?

There are more shares in the investors account

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 (arranging things to show the largest loss/losses can be used against gains, and if there are more losses than gains up to $3,000 of that loss can reduce taxable income)