Taxes & Tax Shelters - Taxation of Corporate and Gov't Securities

Question 1

Constructive receipt means that in order for a dividend to be considered for the current tax year, the check must have been written before _____, even if not paid in 2016

Answer 1

before Dec 31st, 2016

Question 2

Commissions on trades are included in the cost basis. T/F

Answer 2

True - they are not deductible

Question 3

Brokers, on a tax form 1099-B, must show the sale proceeds, but also the _____ and whether it was a ____ or ____ loss or gain; along with any _____ withheld

Answer 3

must show the cost basis, as well as whether a short or long term capital gain; along with any taxes withheld

Question 4

1099-Bs are required along with the regular annual _____

Answer 4

1099 form

Question 5

Adjustments to the cost basis must be made for ____ and ___, but not for _____ paid

Answer 5

must be made for stock splits and stock dividends, but not for cash dividends paid

Question 6

Cost basis is also adjusted for _____ of subsidiaries

Answer 6

spin offs

Question 7

If someone has accumulated shares over a long period of time, the IRS allows you to _____ which shares are being sold; if you do not, they will use ____

Answer 7

specify which shares are being sold, if not they use FIFO

Question 8

Instructions on which shares to sell must be given to the broker no later than the _______ date

Answer 8

settlement

Question 9

“Average” cost accounting is available for _____ shares

Answer 9

mutual fund

Question 10

Interest received on corporate, US gov’t, or foreign gov’t bonds is taxable in the _____ received

Answer 10

year received (using constructive receipt rule)

Question 11

Any accrued interest paid is _____ deductible from the cost basis

Answer 11

is deductible - it is not included in the cost basis

Question 12

If a bond is sold initially at a discount, as the discount is accreted over the life of the bond, it is considered ________ and cost basis is _____

Answer 12

accreted discount is considered taxable income and the cost basis is increased

Question 13

The premium on a premium bond may be _____- over the bond’s life on a ______ basis

Answer 13

may be amortized on a straight line basis

Question 14

Amortized premium is ______ against the taxable interest income and the bonds basis is _____

Answer 14

premium is written off against the taxable interest income and the bonds basis is reduced

Question 15

If bonds are bought in the secondary market, then you can elect to _____ the premium; and you can elect to either _____ the discount or treat it as _______ earned when the bond is sold or redeemed.

Answer 15

you can elect to amortize the premium; for a discount, you can elect to accrete or treat it as “interest income” earned when the bond is sold or redeemed –> in effect this means that you cannot treat the discount as a capital gain (is therefore taxed at up to 39.6%)

Question 16

For TIPS, if the principal is adjusted upwards for inflation, the upwards adjustment is treated as ______ in the year of the adjustment; can be _____ if adjusted downwards

Answer 16

treated as taxable income; can be deducted as an interest expense

Question 17

A premium bond holder, whether bought in the primary offering or on the secondary market, has the _____ to amortize the premium

Answer 17

they have the option, it is not mandatory