Chapter 8: Taxation- netting capital gains and losses

Question 1

Wash sales

Answer 1

Can not take capital loss if you buy the same stock within 30 days or you must wait 30 days to buy back stock; the rule covers a total of 61 days. The sell date and 30 on either side.

Question 2

Corporations and trust income taxe

Answer 2

• 70% of dividends received from other companies is tax free
• 80% if owns more than 20% of another company.
• no corporate tax break on bond interest
• bond interest is not taxable

Question 3

Trust income taxes -depends on the type.

Answer 3

• revocable trust -manage assets the owner(grantor) has placed in their trust
• grantor -can change or terminate; serve as trustee
• irrevocable trust -active only upon grantors death; taxed at special trust income tax rates

Question 4

How gains and losses are netted against each other.

Answer 4

• Net sht term gains against sht term losses
• net lg term gains against lg term losses
• If both are reported as loss or gain must be reported on schedule D
• if one holding period results in a gain and the other in a loss, they are netted against each other.
• if capital losses exceed gains up to $3k can be deducted against ordinary income.
• unused capital gains can be carried indefinitely to future years.