Ch 7 - Assessment Flashcards
One primary difference between corporate and U.S. Treasury bonds is:
treasury bonds always pay interest periodically.
corporate bonds always pay interest periodically.
interest from Treasury bonds is exempt from federal taxation.
interest from corporate bonds is exempt from state taxation.
None of the choices are correct.
treasury bonds always pay interest periodically.
Which of the following is not a tax advantage of a Series EE savings bond?
Taxes are paid as the original issue discount on the bond is amortized.
Interest earned is exempt from state taxation.
Taxes are deferred until the bond is cashed in at maturity.
Interest is exempt from federal taxation when used for qualifying educational expenses.
None of the choices are correct.
Taxes are paid as the original issue discount on the bond is amortized.
Long-term capital gains (depending on type) for individual taxpayers can be taxed at a maximum rate of:
20 percent.
25 percent.
28 percent.
both 20 percent and 28 percent.
All of the choices are correct.
All of the choices are correct.
In the current year, Norris, an individual, has $58,000 of ordinary income, a net short-term capital loss (NSTCL) of $9,200 and a net long-term capital gain (NLTCG) of $3,600. From his capital gains and losses, Norris reports:
an offset against ordinary income of $3,000 and an NSTCL carryforward of $5,600.
an offset against ordinary income of $3,600 and an NSTCL carryforward of $5,600.
an offset against ordinary income of $9,200.
an offset against ordinary income of $3,000 and an NSTCL carryforward of $2,600.
an offset against ordinary income of $3,000 and an NSTCL carryforward of $6,200.
an offset against ordinary income of $3,000 and an NSTCL carryforward of $2,600.
$3,600 NLTCG − $9,200 NSTCL = $5,600 NSTCL. Use $3,000 NSTCL to reduce ordinary income, leaving $2,600 as an NSTCL carryforward.
Ms. Fresh bought 1,000 shares of Ibis Corporation stock for $6,600 on January 15, 2019. On December 31, 2021, she sold all 1,000 shares of her Ibis stock for $5,300. Based on a hot tip from her friend, she bought 1,000 shares of Ibis stock on January 23, 2022, for $3,400. What is Ms. Fresh’s recognized loss on her 2021 sale, and what is her basis in her 1,000 shares purchased in 2022?
$0 LTCL and $4,700 basis.
$520 LTCL and $4,180 basis.
$1,040 LTCL and $3,660 basis.
$1,300 LTCL and $3,400 basis.
$780 LTCL and $3,920 basis.
$0 LTCL and $4,700 basis.
$5,300 amount realized from Ibis sale − $6,600 tax basis in Ibis shares = $1,300 realized loss on sale of Ibis stock. Loss is not currently deductible because the Ibis shares were reacquired within 30 days of the original sale (wash sale). $1,300 nondeductible loss from original Ibis sale + $3,400 purchase price for new Ibis shares = $4,700 tax basis in new Ibis shares.
Cory recently sold his qualified small business stock for $85,000 after holding it for 10 years. His basis in the stock is $45,000. Applying the rules as if the stock were acquired in 2021 and assuming his marginal tax rate is 32 percent, how much tax will he owe on the sale?
$3,000
$5,600
$6,000
$11,200
None of the choices are correct.
None of the choices are correct.
$0. $85,000 − $45,000 = $40,000 realized gain; 100 percent of the gain on qualified small business stock acquired in 2021 and held for more than five years is excluded.
Alain Mire files a single tax return and has adjusted gross income of $302,000. His net investment income is $55,000. What is the additional tax that Alain will pay on his net investment income for the year?
$0.
$2,090.
$3,876.
$1,786.
None of the choices are correct.
$2,090.
Alain’s net investment income tax is the lesser of 1) his net investment income ($55,000) or 2) his modified adjusted gross income less the threshold of $200,000 ($302,000 − $200,000 = $102,000) multiplied by 3.8 percent ($55,000 × 3.8% = $2,090)
Doug and Sue Click file a joint tax return and decide to itemize their deductions. The Clicks’ income for the year consists of $89,200 in salary, $1,600 interest income, and $720 long-term capital loss. The Clicks’ expenses for the year consist of $1,550 investment interest expense. Assuming that the Clicks’ marginal tax rate is 35 percent, what is the amount of their investment interest expense deduction for the year?
$880
$1,550
$1,600
$2,270
None of the choices are correct.
$1,550
$1,600 ≥ investment interest expense ($1,550).
A taxpayer’s at-risk amount in an activity is increased by:
a reduction in the amount of debt related to the activity that the taxpayer is responsible for paying and cash contributions to the activity.
a reduction in the amount of debt related to the activity that the taxpayer is responsible for paying.
a reduction in the amount of debt related to the activity that the taxpayer is responsible for paying and cash distributions from the activity.
cash contributions to the activity.
cash distributions from the activity.
cash contributions to the activity.
Sue invested $6,500 in the ABC Limited Partnership and received a 10 percent interest in the partnership. The partnership had $23,000 of qualified nonrecourse debt and $23,000 of debt Sue is not responsible to repay because she is a limited partner. Sue is allocated a 10 percent share of both types of debt, resulting in a tax basis of $11,100 and an at-risk amount of $8,800. During the year, ABC LP generated a ($111,000) loss. How much of Sue’s loss is disallowed due to her tax basis or at-risk amount?
$2,300 disallowed because of her tax basis.
$0; all of her loss is allowed to be deducted.
$4,600 disallowed because of her tax basis.
$2,300 disallowed because of her at-risk amount.
$4,600 disallowed because of her at-risk amount.
$2,300 disallowed because of her at-risk amount.
Loss allowed = $8,800 amount at risk. Disallowed loss = $2,300. $11,100.00 loss allocation not limited by tax basis − $8,800 at-risk amount.
