Question 1

What is Adjusted Gross Income (AGI)?

Accepted Answer

the starting point to calculate federal income tax liability. AGI is also used to determine some of the personal itemized deductions on a Schedule A filing.

Question 2

What is the formula for AGI?

Accepted Answer

Gross income minus adjustments equals AGI or Adjusted Gross Income

Question 3

Does AGI include income from all sources?

Accepted Answer

Yes.

Question 4

Does AGI include salary and/or commission from gainful employment?

Accepted Answer

Yes.

Question 5

Does AGI include investment income such as capital gains and dividend and interest payments?

Accepted Answer

Yes.

Question 6

Does AGI include alimony received as income?

Accepted Answer

Yes.

Question 7

Does AGI include alimony paid out as a deduction?

Accepted Answer

Yes.

Question 8

Does AGI include interest payments from tax-exempt investments such as municipal bonds?

Accepted Answer

No.

Question 9

Does AGI include unrealized capital gains?

Accepted Answer

No. AGI does not include paper gains. Only realized gains are included in AGI.

Question 10

If your income taxes are deferred for some reason (such as for tax-qualified retirement plans), do you still have to pay social security, medicare, and unemployment taxes?

Accepted Answer

Yes.

Question 11

What is the Average or Effective tax rate?

Accepted Answer

Average or Effective tax rate — the average or effective tax that the customer pays over a period of time. It is found by dividing the amount of tax paid by the taxable income.

Question 12

What is the Income tax rate?

Accepted Answer

Income tax rate — a progressive tax based on the amount of money you make in a given year (e.g. your tax rate increases as your income increases). There is a federal income tax and most states also have state income tax as well.

Question 13

What is the marginal tax rate?

Accepted Answer

Marginal tax rate — the tax rate that is paid on the LAST dollar that you made. In the U.S., the progressive income tax causes the marginal rate to increase with increasing salaries. The more money you make, the higher your tax rate goes. The rate you pay on the last dollar you own is called the marginal tax rate.

Question 14

What are the 3 requirements to file as Head of Household?

Accepted Answer

(1.) unmarried on the last day of the year (2.) the taxpayer paid more than 1/2 of the cost of maintaining a home (3.) a qualifying person lived with the taxpayer for more than 1/2 of the year.

Question 15

How long can a surviving spouse file with a qualifying widow with a dependent child status?

Accepted Answer

for two years AFTER filing a joint return for the year of the spouse’s death.

Question 16

What is a qualifying person?

Accepted Answer

an unmarried child, grandchild, or elderly parent (person) you can claim as an exemption (deduction) on your tax return.

Question 17

What should a divorced parent with custody of young children file as?

Accepted Answer

A divorced parent with custody of young children should file as “head of household."

Question 18

What is a long-term capital gains holding period?

Accepted Answer

12 months plus 1 day or longer, trade date to trade date.

Question 19

What is a short-term capital gains holding period?

Accepted Answer

12 months or less, trade date to trade date.

Question 20

What is the the long-term capital gains tax rate?

Accepted Answer

15%.

Question 21

What is the long-term capital gains tax rate for taxpayers in the 39.6% marginal tax bracket?

Accepted Answer

20%.

Question 22

How is short-term capital gains tax liability calculated?

Accepted Answer

Net Short-Term Gain X Investor’s Marginal Tax Rate = Tax Liability

Question 23

How is long-term capital gains tax liability calculated?

Accepted Answer

Net Long-Term Gain X .15 = Tax Liability

Question 24

When securities given as a gift are sold at a profit, what cost basis is used to calculate tax liability?

Accepted Answer

sold at a profit, the cost basis of the donor (giver) is used.

Question 25

When securities given as a gift are sold at a loss, what cost basis is used to calculate tax liability?

Accepted Answer

sold at a loss, the cost basis of the securities at the time of the gift is used.

Question 26

When shares of stock are inherited, what does the IRS allow to happen to the cost basis?

Accepted Answer

The IRS allows for a step up in the cost basis of the securities -- from the original cost -- to the market value on the date of the death of the decedent.

Question 27

Why should investors in high tax brackets donate securities that have appreciated in value rather than donate cash?

Accepted Answer

Because the appreciated value is the cost basis for a tax deduction. Plus they don't have to pay capital gains tax.

Question 28

What are after-tax rates of return?

Accepted Answer

Used to calculate rates of return after tax (ordinary income or capital gains). When an investor wants to know what their after-tax return on their portfolio, we must: 1). calculate the tax liability (on dividends received, and capital gains, respectively). 2). subtract both tax liabilities from both gross rates of return to get the after-tax gains. 3). Add both the dividend and capital after-tax gains together, and divide that by the initial investment. [cf. p. 154-155]

Question 29

When would a taxpayer have to pay Alternative Minimum Tax (AMT)?

Accepted Answer

If the amount of AMT exceeds the investor's regular tax liability after credits.

Question 30

What types of items may be subject to AMT?

Accepted Answer

1) . oil and gas programs 2) . incentive stock options.

Ch 08(3-4) Inv Recs -- Clients | Fed Income Tax & Trading Securities Flashcards

Detail federal income tax & trading securities [TRUNCATED of topics already mastered]..

Brainscape's Knowledge GenomeTM

Ch 08(3-4) Inv Recs -- Clients | Fed Income Tax & Trading Securities Flashcards

Detail federal income tax & trading securities [TRUNCATED of topics already mastered]..

Brainscape's Knowledge Genome^TM