TAXES: EQUITY OPTIONS + OTHER
A customer has purchased 10,000 shares of Hot Tamale stock, a Mexican enchilada company. The stock is not traded in the United States. Hot Tamale declares and pays a dividend of 20,000 Mexican Pesos, which when converted to dollars, equals $150. Mexico imposes a 10% withholding tax on dividends repatriated outside its borders. How is the dividend reported on this investor's U.S. tax return? A. No dividends are reported, since the investment is made outside the United States B. $150 of dividends are reported, with no tax credit available C. $150 of dividends are reported, along with a $15 tax credit for monies withheld in Mexico D. $165 of dividends are reported, along with a $15 tax credit for monies withheld in Mexico
$150 of dividends are reported, along with a $15 tax credit for monies withheld in Mexico
A couple has a joint net worth of $12,000,000. If one dies in 2019, the taxable amount of the estate is: A. $0 B. $600,000 C. $11,400,000 D. $12,000,000
A. $0
Many years ago, a customer bought 100 shares of ABC stock at $15. The customer makes a single gift to his daughter this year of the stock when it is valued at $30. The stock is sold by the daughter when it is worth $60. For tax purposes, the daughter's cost basis in the security is: A. $15 per share B. $30 per share C. $45 per share D. $60 per share
A. $15 per share
An individual sells 200 shares of stock short at $60 per share and buys back the position 2 years later at $50 per share. The investor has a: A. $2,000 short term capital gain B. $2,000 short term capital loss C. $2,000 long term capital gain D. $2,000 long term capital loss
A. $2,000 short term capital gain
A customer sells short 100 shares of ABC stock at $50 per share. The stock falls to $40, at which point the customer writes 1 ABC Sept 40 Put at $4. The stock falls to $30 and the put is exercised. The customer's cost basis upon exercise of the put is: A. $36 B. $44 C. $46 D. $54
A. $36 40 - 4 = 36
Many years ago, a customer bought 100 shares of ABC stock at $40. The customer makes a single gift to his daughter this year of the stock when it is valued at $50. The stock is sold by the daughter when it is worth $55. For tax purposes, the daughter's cost basis in the security is: A. $40 per share B. $50 per share C. $55 per share D. $60 per share
A. $40 per share
In January, a customer buys 100 shares of ABC stock at $50. Eleven months later in December, the stock is trading at $60. The customer buys 1 ABC Feb 60 Put @ $3. In February, the stock is trading at $51 and the customer exercises the put. The tax consequence is: A. $700 short term capital gain B. $700 long term capital gain C. $300 short term capital loss D. $300 long term capital loss
A. $700 short term capital gain 50 + 3 = 53 (paid / loss) 60 - 53 = 7 (sold /gain)
A married couple has a combined net worth of $14,000,000. If one dies in 2019, the taxable amount of the estate to the surviving spouse is: A. 0 B. $2,600,000 C. $11,400,000 D. $14,000,000
A. 0
A customer switches from a growth fund to an income fund within the same "family of funds." Which statement is TRUE? A. Capital gains tax will be due if the sales proceeds are higher than the cost basis B. Capital gains tax will be due if the sales proceeds are lower than the cost basis C. A capital loss will be incurred if the sales proceeds are higher than the cost basis D. There is no capital gain or loss since this is a "like-kind" exchange
A. Capital gains tax will be due if the sales proceeds are higher than the cost basis
If a gift of securities is made to a family member, which of the following statements are TRUE? I The donor may have gift tax liability if the gift's value is over $15,000 in 2019 II The recipient may have gift tax liability if the gift's value is over $15,000 in 2019 III The cost basis to the recipient is the same as the donor's IV The cost basis to the recipient is the same as the market value of the securities on the gift date A. I and III B. I and IV C. II and III D. II and IV
A. I and III
If a security was held for more than one year and it is donated to a charity by the investor, which of the following statements are TRUE about the tax consequence of the event? I The investor gets to deduct the fair market value of the security as a donation II The investor gets to deduct his original cost basis of the security as a donation III The investor has no tax liability on the appreciation IV The investor has tax liability on the appreciation A. I and III B. I and IV C. II and III D. II and IV
A. I and III
A customer is short 100 shares of ABC stock at $40 per share. The stock goes up to $50 and the customer covers the position. If, 30 days later, the customer decides to re-establish this short position when the market for ABC is $55, which of the following statements are TRUE? I The loss deduction is disallowed II The loss is allowed III The sales proceeds are $45 per share IV The sales proceeds are $55 per share A. I and III B. I and IV C. II and III D. II and IV
A. I and III sold short the stock at $40 stock was repurchased at $50 $10 loss per share ($1000 loss on 100 shares) sold short another 100 shares exactly 30 days later at $55 (to avoid the "wash sale" rule, the position cannot be reestablished until the 31st day) $1000 loss is disallowed. The $10 per share loss will be deducted from the sale proceeds of $55, for a new sale proceeds of $45. In essence, this defers the taking of the loss until this short position is covered.
Which statement is TRUE about selling short against the box? A. It "locks-in" a gain on the stock B. It defers taxation of a gain C. It stretches a short term capital gain to a long term capital gain D. It converts ordinary income into a long term capital gain
A. It "locks-in" a gain on the stock
A father gives a $10,000 gift of securities to his son; and a $10,000 gift of securities to his daughter. Which statement is TRUE? A. The father has no gift tax liability B. The father has gift tax liability on the gift to the son C. The father has gift tax liability on the gift to the daughter D. The father has gift tax liability on both gifts
A. The father has no gift tax liability
A U.S. investor has realized a $4,000 capital gain on Kingdom of Norway bonds. Which statement is TRUE regarding the taxation of the gain? A. The gain is 100% taxable within the United States at U.S. tax rates B. The gain is 100% taxable within Norway at Norwegian tax rates C. The gain is 100% taxable within the United States at Norwegian tax rates D. The gain is not taxed in the United States
A. The gain is 100% taxable within the United States at U.S. tax rates
A customer buys 1,000 shares of PDQ stock at $30. The stock declines to $20, and the customer sells the position at a long term loss in November. 25 days after selling the stock, the customer sells 10 PDQ Jan 30 Puts @ $13. Which statement is TRUE? A. The sale of the put is considered to be a "repurchase" of the securities under the "Wash Sale Rule" and the loss is disallowed B. If the put contract is exercised at any time before expiration, forcing the customer to buy the stock, the loss is disallowed C. Only if the put contract expires unexercised, does the "Wash Sale Rule" not apply D. The "Wash Sale Rule" only applies to the purchase of call options on securities sold at a loss; not to the sale of puts
A. The sale of the put is considered to be a "repurchase" of the securities under the "Wash Sale Rule" and the loss is disallowed
An investor is considering a municipal bond tax swap. All of the following should be considered when determining whether a municipal bond tax swap will result in a "wash sale" EXCEPT: A. bond denominations B. coupon rate C. maturity D. issuer
A. bond denominations bonds NOT considered to be "similar" - 2 of the following 3 factors are different: -the maturity -the coupon rate -or the issue
A customer has written 1 ABC Jan 40 Put @ $3. The contract is exercised when the market price is $32. The tax consequence to the writer is a: A. cost basis of $3,700 B. sale proceeds of $3,700 C. cost basis of $4,300 D. sale proceeds of $4,300
A. cost basis of $3,700 If the writer of a put is exercised, he must buy the stock at the strike price. The premium received is a reduction of the cost of buying the stock. The writer of the put must buy 100 shares at $40 ($4,000), but he or she received $300 in premiums for writing the contract, so the adjusted cost basis is $3,700 for 100 shares.
A customer is short 1 ABC Jan 50 Put @ $7. The put is exercised when the market price of ABC is $45. The customer liquidates the stock position 3 weeks later at $49 per share. Upon exercise, the tax consequence is a: A. cost basis of $43 per share B. sale proceeds of $43 per share C. cost basis of $57 per share D. sale proceeds of $57 per share
A. cost basis of $43 per share If a short put is exercised, the writer is required to buy the stock at the strike price ($50). Since $7 per share was received in premiums, the writer's cost of the stock is $43 per share for tax purposes. The writer sells the stock later in the market for $49 per share, for a $6 per share capital gain.
A customer is short 1 ABC Jan 90 Put @ $5. The put is exercised when the market price of ABC is $80. The cost basis of the shares is: A. strike price minus premium B. strike price plus premium C. market price minus premium D. market price plus premium
A. strike price minus premium
On August 22nd, a customer buys 1,000 shares of ABC stock at $40 per share. On November 1st of that year, the customer buys 30 ABC 4 1/4% Convertible debentures at 102. The debentures are convertible at $40 per share. On November 20th of the same year, the customer sells 1,000 shares of ABC at $30. The reported loss for tax purposes is: A. 0 B. $2,500 C. $7,500 D. $10,000
B. $2,500 This customer has created a "wash sale" by purchasing the 30 ABC convertible debentures, convertible at $40 per share, only 20 days prior to selling the 1,000 shares of ABC stock at a loss (ABC stock was bought at $40, and then sold at $30 per share). The customer sold 1,000 shares of ABC stock with a cost basis of $40 for $30 per share, creating a $10,000 loss on November 20th. Because the customer bought the equivalent of 750 shares (30 convertible bonds, convertible into common stock at $40 per share. If converted, each bond would create $1,000 par/$40 conversion price = 25 shares per bond x 30 bonds = 750 shares), the loss deduction is disallowed on 750 out of the 1,000 shares sold. Thus, the customer could only claim the loss deduction on 250 shares x $10 loss per share = $2,500 loss deduction allowed.
An individual buys 100 shares of ABC stock at $25. This person dies when the stock is trading at $20, and leaves the shares to his son. The son sells the stock when it is trading at $30. The son's cost basis in the stock is: A. $0 B. $20 C. $25 D. $30
B. $20
On June 9th, a customer buys 100 shares of PDQ stock at $26 per share. On June 12th of the same year, the customer sells the stock at $23. On June 30th of the same year, the customer buys PDQ stock at $24. The customer's cost basis in PDQ stock is: A. $24 B. $27 C. $28 D. $29
B. $27 $24 + $3 loss = $27 per share.
A customer buys 100 shares of ABC stock at $40 per share. 7 months later, when the stock is at $52, the customer dies. The customer wills the stock to his son and the transfer is completed when the stock is at $54 per share. The stock appreciates to $55 over the next month, and the son sells the stock. The stock's cost basis to the son is: A. $40 per share B. $52 per share C. $54 per share D. $55 per share
B. $52 per share
A customer is short 100 shares of PDQ stock at $62 per share. The stock goes up to $67 and the customer covers the position. If, 30 days later, the customer decides to re-establish this short position when the market for PDQ is $65, what will the sale proceeds be? A. $57 per share B. $60 per share C. $70 per share D. $72 per share
B. $60 per share sold short the stock at $62 stock was repurchased at $67 $5 loss per share ($500 loss on 100 shares). sold short another 100 shares exactly 30 days later at $65 (to avoid the "wash sale" rule, the position cannot be reestablished until the 31st day) $500 loss is disallowed. The $5 per share loss will be deducted from the sale proceeds of $65, for a new sale proceeds of $60. In essence, this defers the taking of the loss until this short position is covered.
Which of the following are regressive taxes? I Estate and Gift Tax II Sales Tax III Excise Tax IV Income Tax A. I and IV only B. II and III only C. I, II, III D. I, II, III, IV
B. II and III only
Which statement is TRUE about the tax treatment of short sales of securities? A. Short sales can result in either a short term or long term capital gain or loss upon covering the short position B. Short sales can only result in short term capital gain or loss upon covering the short position C. Short sales can only result in long term capital gain or loss upon covering the short position D. Short sales are not taxed since a holding period is never established
B. Short sales can only result in short term capital gain or loss upon covering the short position
A customer buys 2 ABC Jul 50 Calls @ $4. The customer lets the contracts expire. Which statement is TRUE? A. The holder has a $400 capital loss at expiration B. The holder has an $800 capital loss at expiration C. The holder has a $5,400 capital gain as of the purchase date D. The holder has a $5,400 capital loss at expiration
B. The holder has an $800 capital loss at expiration
A customer buys 1 ABC Jan 50 Call @ $4 when the market price of ABC is $51. The stock then moves to $58 and the customer exercises the option and sells the stock at the market. The tax consequence is a: A. capital loss of $400 B. capital gain of $400 C. capital gain of $800 D. capital gain of $1,000
B. capital gain of $400 If a customer exercises a call, he is buying the stock at the strike price. The customer's cost basis is the purchase price of the stock ($50) plus the premium paid ($4) = $54. Since the customer sold the stock at $58, he or she will have a capital gain of $400.
A customer buys 1 ABC Jan 45 Put @ $4 when the market price of ABC is $48. The put is exercised when the market price is $40. The tax consequence is a: A. cost basis of $4,100 B. sale proceeds of $4,100 C. cost basis of $4,900 D. sale proceeds of $4,900
B. sale proceeds of $4,100 premium paid for the put reduces the sale proceeds. The stock is being sold at $45, but since $4 was paid in premiums, the net sale proceeds are $41 per share or $4,100 for the contract. Note that this is the same as the breakeven point.
When an individual sells stock short that the individual owns, this is termed: A. shorting the stock B. short against the box C. long against the short D. long against short exempt
B. short against the box
A customer is long 1 ABC Jan 90 Call @ $5. The call is exercised when the market price of ABC is $100. The cost basis of the shares is: A. strike price minus premium B. strike price plus premium C. market price minus premium D. market price plus premium
B. strike price plus premium
A customer is short 1 ABC Jan 90 Call @ $5. The call is exercised when the market price of ABC is $100. The sales proceeds of the shares is: A. strike price minus premium B. strike price plus premium C. market price minus premium D. market price plus premium
B. strike price plus premium
A customer has purchased 20,000 shares of Ou-La-La stock, a French clothing company. The stock is not traded in the United States. Ou-La-La declares and pays a dividend of 1,125 Euros, which, when converted to dollars equals $1,000. France imposes a 20% withholding tax on dividends repatriated outside its borders. How is the dividend reported on this investor's U.S. tax return? A. No dividends are reported, since the investment is made outside the United States B. $800 of dividends are reported, since $200 was withheld in France C. $1,000 of dividends are reported, along with a $200 tax credit for monies withheld in France D. $1,000 of dividends are reported, with no tax credit available
C. $1,000 of dividends are reported, along with a $200 tax credit for monies withheld in France
Over the last 10 years, a client has bought 100 shares of ABC Mutual Fund each year in a taxable account and has elected to have dividends and capital gains automatically reinvested in additional fund shares. The aggregate cost of the 1,000 purchased shares is $21,300. In addition, over these 10 years, the customer has bought 400 additional shares through dividend reinvestment at an aggregate cost of $9,520. At the end of the 10th year, the client's statement shows that the customer owns 1,400 shares at an aggregate market value of $47,400. If the client redeems 100 of the shares, the average cost basis per share is: A. $15.21 B. $21.30 C. $22.01 D. $33.86
C. $22.01 To find the average cost basis, add the cost of the original 1,000 shares ($21,300) and the cost of the additional 400 shares purchased through dividend reinvestment ($9,520) = $30,820 divided by 1,400 shares owned = $22.01 cost per share.
Over the last 5 years, a client has bought 200 shares of XYZ Mutual Fund each year in a taxable account and has elected to have dividends and capital gains automatically reinvested in additional fund shares. The aggregate cost of the 1,000 purchased shares is $31,300. In addition, over these 5 years, the customer has bought 300 additional shares through dividend reinvestment at an aggregate cost of $11,300. At the end of the 5th year, the client's statement shows that the customer owns 1,300 shares at an aggregate market value of $49,600. If the client redeems 100 of the shares, the average cost basis per share is: A. $24.08 B. $30.43 C. $32.77 D. $38.15
C. $32.77 average cost basis = cost of the original 1,000 shares ($31,300) + the cost of the additional 300 shares purchased through dividend reinvestment ($11,300) = $42,600 divided by 1,300 shares owned = $32.77 cost per share.
A corporation buys the stock of another company. Which percentage of dividends received from the investment in the acquired company's shares are excluded from tax to the corporate purchaser of those shares? A. 0% B. 30% C. 50% D. 100%
C. 50%
A customer purchases a stock. Two years later, he sells his stock position at a loss. Under the "Wash Sale Rule," the loss will be disallowed if the customer, within 30 days of the sale: I buys a call option on that stock II sells a call option on that stock III buys a put option on that stock IV sells a "deep in the money" put option on that stock A. I or II B. III or IV C. I or IV D. II and III
C. I or IV
A corporate investor may exclude from taxation, part of: I dividends received from common stock investments II dividends received from preferred stock investments III dividends received from convertible preferred stock investments IV interest received from convertible bond investments A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
C. I, II, III
An investor buys 100 shares of ABC stock at $60 in January of 2019. In March of 2020, the stock is worth $100 per share and the investor donates it to a charity. The tax consequences are: I a $6,000 charitable deduction II a $10,000 charitable deduction III no tax due on the appreciation IV tax is due on the appreciation A. I and III B. I and IV C. II and III D. II and IV
C. II and III
Which of the following are included in the taxable income of a corporation? I Proceeds received from the issuance of common stock II Dividends received from domestic investments III Interest received from foreign investments IV Gain on the sale of a capital asset A. I and IV only B. II and III only C. II, III and IV D. I, II, III, IV
C. II, III and IV The proceeds received by a corporation from issuing debt or stock are not taxable.
Which of the following statements are TRUE regarding gift and estate taxes? I Gift and estate taxes are regressive taxes II Gifts valued up to $15,000 per person in 2019 are excluded from tax III The first $11,400,000 of an estate for year 2019 is excluded from tax IV Tax liability rests with the donor or estate A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV
C. II, III, IV
A customer is short 100 shares of XYZ stock at $70 per share. The customer covers the position at $75. 20 days later, the customer reestablishes the short position by selling short 100 shares of XYZ at $73. The tax consequence of these transactions is: A. $200 capital loss; and sale proceeds on the reestablished position of $68 per share B. $500 capital loss; and sale proceeds on the reestablished position of $73 per share C. No capital loss due to the "wash sale rule"; and sale proceeds on the reestablished position of $68 per share D. No capital loss due to the "wash sale rule"; and sale proceeds on the reestablished position of $73 per share
C. No capital loss due to the "wash sale rule"; and sale proceeds on the reestablished position of $68 per share The $5 per share loss will be deducted from the sale proceeds of $73, for a new sale proceeds of $68
Which statement is TRUE regarding dividend and capital gain distributions made by mutual funds? A. The payments are not taxable if they are reinvested in additional fund shares B. The payments are only taxable when the fund shares are liquidated C. The payments are taxable in the year they are distributed D. The payments are tax deferred
C. The payments are taxable in the year they are distributed
All of the following are progressive taxes EXCEPT: A. income tax B. gift tax C. excise tax D. estate tax
C. excise tax
Gain or loss on all of the following options positions will be short term EXCEPT for those realized from: A. long equity options B. short equity options C. long equity LEAP options D. short equity LEAP options
C. long equity LEAP options
All of the following are included in the taxable income of a corporation EXCEPT: A. dividends received from foreign investments B. gain on the sale of a capital asset C. proceeds received from the issuance of debt securities D. interest received from domestic investments
C. proceeds received from the issuance of debt securities
A customer sells 1 ABC Jan 50 Call @ $4 when the market price of ABC is $51. The stock then moves to $58 and the customer is exercised. The tax consequence upon exercise is a: A. capital loss of $400 B. capital gain of $400 C. sale proceeds of $5,400 D. cost basis of $5,400
C. sale proceeds of $5,400 If a writer of a call is exercised, he or she is selling the stock. The customer's sale proceeds is the sale price of the stock ($50) plus the premium received ($4) = $54. Notice that this is the same as the breakeven. No taxable event occurs until the stock is bought.
5 years ago, an individual had invested $10,000 in an Investment Trust. Over those years, the trust has distributed $2,000, consisting of $1,600 of dividends and $400 of capital gains. The investor has reinvested these distributions in additional trust units. The investor's aggregate current cost basis in the Trust is: A. $10,000 B. $10,400 C. $11,600 D. $12,000
D. $12,000 $10,000 + $2,000 = $12,000
A customer buys 100 shares of XYZ stock at $36 and buys 1 XYZ Jan 35 Put @ $6 on the same day. For tax purposes, what is the cost basis of the stock? A. $30 B. $36 C. $41 D. $42
D. $42
A customer buys 100 shares of XYZ stock at $51 and buys 1 XYZ Jan 50 Put @ $4 on the same day. The put expires and the stock is sold in the market for $59. For tax purposes, what is the cost basis of the stock? A. $50 B. $51 C. $54 D. $55
D. $55 The cost of the stock is $51 + $4 premium = $55 per share. When the stock is sold at $59, the customer reports a 4 point capital gain.
The time window during which the wash sale rule is in effect covers a total of: A. 30 days B. 31 days C. 60 days D. 61 days
D. 61 days
Which of the following statements are TRUE regarding gift and estate taxes? I Gift and estate taxes are progressive taxes II Gifts valued up to $15,000 per person in 2019 are excluded from tax III The first $11,400,000 of an estate (in 2019) is excluded from tax IV Tax liability rests with the donor or estate A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV
D. I, II, III, IV
A municipal bond "tax swap" is described by which of the following? I The purchase and sale of identical bonds II The purchase and sale of similar, but not identical bonds III The "swap" is employed to incur a capital gain for that year IV The "swap" is employed to incur a capital loss for that year A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
When performing a municipal bond tax swap, the investor is: I selling existing bonds at a gain II selling existing bonds at a loss III using the proceeds from the sale to buy the same bonds back IV using the proceeds from the sale to buy similar, but not identical bonds A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
A customer sells 1 XYZ July 45 Call @ $2 after having purchased 100 shares of XYZ @ $42 per share. If the customer is exercised, the tax consequences are: I cost basis of $40 per share II cost basis of $42 per share III sale proceeds of $44 per share IV sale proceeds of $47 per share A. I and III B. I and IV C. II and III D. II and IV
D. II and IV customer purchased the stock at $42 =cost basis When the call is exercised, the customer must sell the stock at the strike price of $45. customer also received $2 in premiums from the sale of the call, this is included in the sale proceeds for tax purposes. The sale proceeds are thus $45 + $2 = $47 per share. The net taxable gain is: Cost Basis of $42 - Sale Proceeds of $47 = Taxable Gain of $5 per share.
An investor sells stock at a $1,000 loss and buys back the position within 30 days. Which statement is TRUE? A. The loss deduction is allowable in full B. Only 50% of the loss deduction is allowable C. The loss deduction is only allowed to the extent of offsetting capital gains D. No loss deduction is allowed
D. No loss deduction is allowed
An investor is considering a municipal bond swap. All of the following should be considered when determining whether a municipal bond tax swap will result in a "wash sale" EXCEPT: A. coupon rate B. maturity C. issuer D. dated date
D. dated date
A parent opens a custodian account for a 10-year old child. The grandparents then donate into the account. If the total investment income in the account exceeds $2,100 in 2019, the income is taxed at the: A. minor's tax rate B. parent's tax rate C. grandparent's tax rate D. gift and estate tax rate
D. gift and estate tax rate
In the same year, an investor has made the following trades: Jun. 1st: Buy 100 ABC at $50 Dec. 1st: Buy 100 ABC at $35 Dec. 9th: Sell 100 ABC at $40 The tax result of the transactions is: A. $500 capital gain B. $750 capital loss C. $1,000 capital loss D. no capital gain or loss
D. no capital gain or loss these transactions are subject to the "wash sale" rule. The customer bought 100 shares of ABC at $35, eight days before selling the stock at a loss on December 9th. When applying the wash sale rule, FIFO (first in; first out) accounting is always used - specific identification is not allowed - the first shares were bought at $50 and are now being sold at $40 for a 10 point loss. The wash sale rule states that if the stock is repurchased from 30 days prior to the sale until 30 days after the sale, any loss deduction is disallowed.
All of the following will affect the counting of the holding period of ABC stock, a position that has been held for 6 months, EXCEPT: A. selling ABC "short against the box" B. buying an "in the money" ABC put contract C. buying an "out the money" ABC put contract D. selling an "out the money" ABC put contract
D. selling an "out the money" ABC put contract
