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Unit 2 > Taxes > Flashcards

Taxes Flashcards

1
Q

What is a cash dividend?

A

Income received from an equity investment

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2
Q

What are three examples of packaged products that receive dividends?

A
  1. mutual funds
  2. closed end funds
  3. ETFs
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3
Q

How are dividends taxed in comparison to other forms of investment income?

A

They are taxed less than other forms like bond interest

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4
Q

What 5 things determine an investor’s annual taxable income rate?

A
  1. salary
  2. wages
  3. commissions
  4. bonuses
  5. royalties
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5
Q

What’s the difference between qualified an unqualified dividends?

A

Qualified tax dividends are taxable at lower rates than non-qualified

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6
Q

What are the three brackets of qualified divident tax rates

A
  1. 0 percent
  2. 15 percent
    20 percent
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7
Q

What two requirements must be met to have qualified tax dividends?

A
  1. distributed by a US corporation or qualfied foreign corporation
  2. investor must meet a specific unhedged holding period
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8
Q

What is required to be consired a qualified foreign corporation?

A

ONE of three requirements:

  1. Incorporate in a US posession including territories
  2. subject to a US tax treaty
  3. dividend=paying security trades on an established stock exchange
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9
Q

What does meeting an unhedged requirement mean?

A

Not having any insurance or option hedges that would prevent investor from experiencing a loss

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10
Q

What dividend tax rate should you assume on the SIE if none is given?

A

15 percent

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11
Q

What are unqualified dividends taxed at?

A

The individual’s federal marginal income tax bracket

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12
Q

What is a marginal tax bracket?

A

tax bracket applied to the last dollar earned

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13
Q

What determines the tax rate of unqualified dividends ?

A

Income tax rate

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14
Q

What dividend rate do mutual funds, common stocks, and preferred stocks pay?

A

Qualified

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15
Q

What specific dividend-paying investment never pays qualified dividends?

A

Real estate investement trust REIT

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16
Q

What is the logic behind REITs always being non-qualified?

A

With a higher income tax rate, REITs must offer higher rates of returns to encourage investors to purcahse units

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17
Q

What tax form are dividends reported on?

A

1099 DIV

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18
Q

At what frequency are dividends reported?

19
Q

What tax year will dividends show up in?

A

The year the dividend was paid, not declared

20
Q

When are new shares taxable?

A

Not until they are sold

21
Q

What type of dividend do 1099 DIV not report?

A

stock dividends

22
Q

What taxes are US Gov debt subject to?

A

Federal taxes only

23
Q

What taxes are martgage backed securities subject to?

A

federal, state, and local

24
Q

What taxes are municipal debt subject to?

A

State and local taxes

25
When are municipal debt tax free?
If resident or territory bond
26
What taxes are corporate debt subject to?
federal, state, and local
27
Define marginal tax bracket
tax bracket applied to the next dollar received
28
What tax form is interest reported on?
1099 INT
29
What is the tax rate for interest equal to?
federal marginal income tax bracket
30
When is a capital gain realized?
When customer sells security at a higher price than its original cost
31
What does the cost basis represent?
Overall amount paid to buy the security including commission
32
What do sales proceeds represent?
Overall amount received to sell a security minus commision
33
What counts as long-term capital gains
securities held for more than 12 months not equal to 12 months
34
In what manner are long-term capital gains taxed?
Same as qualified dividends 0%, 15%, or 20%
35
What should you assume is tax rate on qualified dividends or long-term capital gains?
15%
36
What qualifies a short-term capital gain?
Made on securities held for one year or less
37
At what rate are short term capital gains taxed?
At investor's income tax bracket
38
What is the marginal tax bracket?
The tax bracket applied to the last dollar earned
39
What form are capital gains reported on?
1099 B
40
What are two tax benefits to the deceased?
1. cost basis is stepped up 2. Holding period is automatically long-term
41
To when is the new cost basis adjusted when someone dies?
To the value on the day of the original owner's death
42
Formula for cost basis?
purchase price. + commission
43

Unit 2 (18 decks)

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