Chapter 3 - Customer Accounts and Tax Issues Flashcards
Earned or ordinary income
Compensation received for providing goods or services.
Passive income
Investor doesn’t have an active role. Passive losses may only offset other passive income or gains.
Dividend income
Cash dividends taxes payable in year of receipt. Stock dividend taxes by adjusting tax basis of their stock.
Interest income on bonds
Corporations - federal and state/local taxation
US Government - federal taxation
Municipalities - state/local dependent on issuer and customer specifics
Deferred income
For retirement or annuity accounts (withdrawals taxed at ordinary income).
Progressive taxes
Graduated
Regressive taxes
Flat
Dividend tax
Max of 20%
REIT dividends tax
As ordinary income
Alternative Minimum Tax
First calculate taxes using the standard method, and then use the AMT method then pay the greater of the two.
Gift taxes
$14k per year to any number of persons. Married couples may combine their gifts to $28k per year. Amounts above are subject to a gift tax payable by the giver.
Marital deduction
Couple may give unlimited gifts to each other and first to die can leave an unlimited amount to the survivor.
Estate tax exemption
$5mm subject to inflation. Maximum tax rate is 40%.
Net investment income tax
3.8% on net investment income (capital gains and dividends if adjusted gross income exceeds $200k for singles or $250k for those filing jointly.
Gift to 529 plan
May lump 5 years together up to the gift limit (so $70k for single, $140k for married).
Short term capital gains
Held less than one year; taxed at ordinary income.
Long term capital gains
Held more than one year; taxed at max of 20%.
Netting of capital gains/losses
Can offset with no dollar limitation. Can offset taxes on ordinary income up to $3k and can be carried forward.
Single/married tax status
Determined by status on 12/31 of that year.
Reasonable-basis obligation
Reasonable basis that a recommendation is suitable for at least some investors.
Customer-specific obligation
Reasonable basis that a recommendation is suitable to a particular customer based on their investment profile.
Quantitative obligation
Reasonable basis to believe that a series of recommended transactions, even if they are suitable for a customer, are not excessive when considering the customer’s investment profile.
Send updated information
Within 30 days of change notification to both previous address and new address.
