Chapter 9 Part 1 Flashcards
If the adviser is meeting with an individual client, an important initial step is to determine
the current stale of the client’s finances
If the client refuses to provide an adviser with complete information, the adviser may
not make assumptions about the client’s finances
Financial considerations are elements that will affect
a client’s financial situation.
Financial considerations including the investor’s
occupation, income, and the tax consequences of the investments recommended should be analyzed
client’s cash flow
The money the client is receiving and the expenses being paid by the client
Earned income is
is compensation received for providing goods or services. It includes salaries, commissions, and wages earned through employment. Earned income is taxed at the individual’s tax bracket
Investment income is the income
look up in book
Cash Dividends
These are taxable in the year they are paid to the shareholder. Individuals must pay tax on the full amount of all cash dividends received, even if those dividends are reinvested with the issuer
Stock Dividends
These are not taxable at the time of receipt. Instead of declaring the additional shares as income, the stockholder must adjust the cost basis of her position in the stock
Interest income Corporation
Taxed by Fed and state and local
Interest income U.S. Government
Taxed by the Fed but not by State and Local
Interest income Municipalities
Not taxed by the Fed and depends if taxed by State and Local
Interest income U.S. Territories and Possessions
Triple exempt from taxes
U.S. territories or possessions, including
the Commonwealth of Puerto Rico, Guam, and the U.S. Virgin Islands. Interest paid by these securities is triple-tax-exempt
Passive Income
This is investment income received from a business venture in which the investor does not have an active role. Income received from a limited partnership is an example of passive income. Passive income is taxed in the same manner as earned and investment income. the only difference is that passive losses may only be used to offset other passive income or gains. They may not be used to offset earned or portfolio income
Mutual fund income can be in the form of dividends, capital gains, and proceeds from redemptions. Dividends and capital gains distributed by the fund are taxable
during the year received, even if they are subsequently reinvested
If an investor exchanges shares from one fund for shares of another fund within the same fund family, this action
could also trigger a taxable event. The owner would have a capital gain or capital loss for tax purposes, depending on the proceeds received and the original cost
Most mutual fund families provide shareholders with exchange
privileges. This means clients may exchange one fund for another within the same fund family without incurring a sales charge
Alternative Minimum Tax (AMT) is a method of calculating tax liability
for wealthy taxpayers. It was originally introduced to ensure that wealthy individuals, who derived income from certain types of investments, would pay at least a specified minimum amount of taxes and/or would not avoid taxes altogether
Certain taxpayers are required to adjust their taxable income based on their investment in
taxpreference items. Tax-preference items may include interest on certain municipal bonds, various depreciation expenses, and a variety of events that result from owning limited partnership interests
