Chapter 5

Question 1

Which one of the following is the most immediate effect of a nondeductible contribution to a traditional IRA?

a. tax avoidance
b. tax evasion
c. tax deferral
d. tax reduction

Answer 1

c. tax deferral

Question 2

Mrs Arbuckle paid $22,100, or 22.1% of her taxable income of $100,000, in federal income taxes. What does this percentage represent?

a. average tax rate
b. compound annual tax rate
c. marginal tax rate
d. tax surcharge

Answer 2

a. average tax rate

Question 3

David Vandercamp passed away in 2022, leaving a sizable estate. His will left, among other things, 2,000 shares of GE to his daughter, Bianca. These shares had been purchased as a single lot in 2008. Bianca sold the stock. What was her cost basis in these shares?

a. Her father’s cost basis less a 10% excise tax
b. Her father’s cost basis
c. the market price as of the sale date
d. The fair market value of the date of death

Answer 3

d. The fair market value of the date of death