Taxes Flashcards
Progressive tax
Variable rate, low income - low rate, high income - high rate
Regressive tax
Flat rates, everyone pays the same
Gas, alcohol, tobacco taxes
Long term cap gains tax rate
15%, unless income 400k or more, then 20%
Capital losses
An investor can claim 3k each year as a write off, can be carried over
Qualified dividends
Taxed at 15%, cash dividends received on stock held more than 60 consecutive days
Wash sale rule
If stock sold at loss, cannot by same stock for 30 days prior or after sale and claim the write off
Can’t use convertibles, warrants, rights or options of the same stock either.
Can use preferred of the same stock or bonds of the same company.
Tax bond swap
Sell a bond at a loss, but a different bond of another issuer to improve portfolio and get write off, must have at least 2 of 3 differences
Issuer, coupon, maturity
Corporate taxes
70% of cash divs are tax free, if company owns 20% or more of the company
Gift taxes
14k annual gift exclusion, lifetime exclusion 5.43mm
Actual gift tax is 40% (amounts beyond the exclusion
Gifting securities
Recipient assumes donor’s cost basis - that is, they are on the hook for the capital gains taxes
RMD
Must begin April 1st year after 70.5, otherwise 50% penalty
Taxes on non-qualified plans
LIFO
Keogh plan
Self employed income, max contrib 20% gross but no more than 53k
Ira contribs
$5500, if over 50 1k catchup
Ira assets
US mint coins and securities
Cannot include - commodities, stamps, coins or LI
Ira w/d exclusions
1st time home buyers, college, qualified medical expense
Roth w/d
Held at least 5 yrs and 59.5 age
Education (Coverdell) savings acct ESA
Roth-like, annual 2k contrib for kids under 18,tax free if used for educational expenses, must be used before age 30 or rolled to another family member, if not 10% penalty
529 contrib
14k annual or 5 yr accelerated 70k
SEP
Simplified employee pension, ER contribs (pretax) fully vested, max contrib 53k or 25% gross income whichever is less
Simple
100 ee’s or less, no other plan, pretax contribs from ER and ee, max contrib $12,500, plus 3k 50yr catch up
ER contrib 3% or 2%
403b
Public schools and non-profits, ee contribs 18k, ER 35k total of 53
6k catch up
ERISA
Employee retirement income security act 1974, covers qualified plans, participation, vesting, funding, communication, and non-discrimination
401k
18k ee, 35k ER, total of 53k, 6k catch up
Profit sharing
ER contribs only, required to contrib specific% of corp profits, max 53k
Contribs are discretionary
Money purchased plan
See profit sharing except MPP is mandatory contrib
ESOP
Similar to profit sharing, except cash used to purchase stock
Non-qualified corporate plans
Ee defers taxes and ER defers deductions
R/O
Must be completed w/in 60 days to avoid taxation, 1 yr wait btwn r/o’s
Trustee to trustee transfer does not count
HSA
Must have high deductible plan, can’t be covered by Medicare, tax fre w/d if for qualified medical expenses, otherwise 20% penalty
How are bonds taxed?
Ordinary income on interest, LT/ST cap gains if sold before maturity
No cap gains if held to maturity
Accretion
Used on discount bonds, pay ordinary income tax on annualized interest earned, need to add what you get back to your basis, see example
Amortization
Used for premium bonds, tax write off for annual losses on a premium bond, cost basis reduced each yr by amount of annual write off, used as deduction from ordinary income
