Interest
Taxed at ordinary rates, cash interest payments taxes annually, accrued market discount is taxed at sale or maturity, original issue sold annually.
Dividends
Taxed annually, qualified dividends are taxed at preferential rates, generally taxed at lower capital gains rates.
Discount
Issued below maturity value.
Premium
Issued above maturity value.
U.S. Treasury Bonds
Pays at stated rate semiannually. Interest is tax exempt.
Amortization
Gross income in addition to any interest payments the tax payer actually receives.
U.S. Savings Bonds
Does not pay periodic interest, but accumulates and pays when redeemed.
Capital Assets
Bought and held assets with appreciation potential.
Portfolio Investments
Investments producing dividends, interest, royalties, annuity, and capital gains.
Passive Investments
Generates operating income and operating losses.
Loss will first offset gains in the 28%, then 25%, then used to offset short-term capital gains
A long term capital loss in the 15% category to offset capital gains in the other rate categories:
Ordinary tax rates and held for less than one year
Short-term gains and losses
The suspended loss may be deducted when a taxpayer generates passive income from that activity or another passive activity.
Which of the following statements is true when considering the deductibility of a suspended passive loss?
$25,000
How much is allowed to be deducted in a rental activity when they are active?
Investment Expense
Misc. Itemized deduction subject to 2% of AGI floor.
Land held for investment, corporate stock, personal residence, coin collection
Qualifies as capital assets
Wash sales, sales of personal assets, and sales related to parties
Which type of transactions results in capital losses that are not deductible for tax purposes?
Wash Sales
Transaction where an investor sells a losing security to claim a capital loss, only to repurchase it again for a bargain. Within 30 days.
FIFO
If you haven't maintained good records to track stock portfolio, what method should be used to calculate tax basis?
Collectibles
Qualifications:
Gain may be taxed up to 28%
coin and stamp collections may qualify
Alcoholic beverages held over a year may qualify
3.80%
What is the rate of additional tax that is accessed on net investment income when it exceeds certain thresholds?
10,000 of the loss will flow through to Darin and he will be able to deduct 5,000
Darin has a tax-basis of 7,000: his at risk amount is 5,000, he is part of a partnership where he is 25% owner. There is a 40,000 loss. How much will flow-through to Darin and how much will he be able to deduct?
Investment Interest Expense
Interest incurred on loans used to acquire investments.
50% of the gain is excluded from taxation as a 2016 sales transaction. 5 or more years to qualify
Which of the following is correct regarding the sale of qualified business stock?
Accrued market discount on bonds
Which of the following types of interest income is not taxed as it is earned?
Taxes are paid as the original issue discount on the bond is amortized
Which of the following is not a tax advantage of a series of EE savings bonds?
$7000
90,000-40,000= 50,000
50%=25,000
28%rate= 7,000
Cory recently sold his qualified small business stock for $90,000. He had it for ten years, his basis is $40,000. Marginal rate= 15%. How much tax will he owe on the sale?
More than $700 (2% AGI floor)
Bill would like some tax benefits for investment expenses. His AGI is $190,000. He has a $1,000 investment fee, $1,500 unreimbursed employee expenses, $600 tax return preparation fees. How much more must be spent before there is a tax benefit?
Interest income, net short-term capital gains, non-qualified dividends, and royalty income
When calculating net investment income, gross investment income includes:
Carried forward indefinitely
Unused investment interest expensed is:
Interest expense from loans to purchase municipal bonds
expenses incurred to produce tax-exempt income
Investment interest expense does not include