Exam 11: Investments

Doug and Sue Click file a joint tax return and decide to itemize their deductions.The Click's income for the year consists of $90,000 in salary,$2,000 interest income,$800 long-term capital loss.The Click's expenses for the year consist of $1,500 investment interest expense.Assuming that the Click's marginal tax rate is 35%,what is the amount of their investment interest expense deduction for the year?

Jim (life expectancy is 20 years) decides to purchase a life insurance policy for $75,000 that promises a 9 percent annual return.Jim decides to cash in the policy after five years while still living.Assuming Jim's marginal tax rate is 35 percent,what are his after-tax proceeds? (Round all interim calculations to the nearest whole number)

Kevin bought 200 shares of Intel stock on January 1,2013 for $50 per share with a brokerage fee of $100.Then,Kevin sells all 200 shares for $75 per share on December 12,2013.The brokerage fee on the sale was $150.What is the amount of the gain/loss Kevin must report on his 2013 tax return?

Bob Brain files a single tax return and decides to itemize his deductions.Bob's income for the year consists of $75,000 of salary,$3,000 long-term capital gain,and $1,500 interest income.Bob's expenses for the year consists of $800 investment advice fees,$700 unreimbursed employee business expenses (a miscellaneous itemized deduction) ,and $250 tax return preparation fees.What is Bob's actual deduction for miscellaneous itemized deductions?

Bill would like some tax benefits for his investment expenses incurred this year.His AGI is $190,000.Currently,his expenses consist of: (1) $1,000 investment advice fees, (2) $1,500 unreimbursed employee business expenses (a miscellaneous itemized deduction) ,and (3) $600 tax return preparation fees.How much more,if any,must Bill spend for investment expenses this year before he receives any tax benefit?

What rate should be used when calculating the after-tax future value of investments with a constant rate of return that is taxed annually?

How are individual taxpayers' investment expenses and investment interest expense treated for tax purposes?

When selling stocks,which method of calculating basis provides the greatest opportunity for minimizing gains or increasing losses?

What are the rules limiting the amount of capital losses a taxpayer may deduct in a given year? Name at least three.

Brandon and Jane Forte file a joint tax return and decide to itemize their deductions.The Forte's income for the year consists of $120,000 in salary,$1,000 interest income,$1,500 nonqualifying dividends,and $1,000 long-term capital gains.The Forte's expenses for the year consist of $3,000 investment interest expense and $900 tax preparation fees.Assuming that the Forte's marginal tax rate is 30%,what is the amount of investment interest expense deduction for the year?

When 529 plan distributions are not used for qualified higher education expenses,these distributions are subject to an additional penalty of:

Unused investment interest expense:

Cory recently sold his qualified small business stock (acquired in 2013) for $90,000 after holding it for ten years.His basis in the stock is $40,000.Assuming his marginal tax rate is 35 percent,how much tax will he owe on the sale?

The rental real estate exception favors:

Ms.Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15,2011.On December 31,2013 she sold all 1,000 shares of her Ibis stock for $4,500.Based on a hot tip from her friend,she bought 1,000 shares of Ibis stock on January 23,2014 for $3,000.What is Ms.Fresh's recognized loss on her 2013 sale and what is her basis in her 1,000 shares purchased in 2014?

Richard purchased a life insurance policy at a cost of $65,000.His two sons,Dale and Drew,were named the beneficiaries.His policy promises a return of 7.5 percent per year if Richard dies after his normal life expectancy of 25 years.Due to a recent recession,Richard must cash out his policy after 15 years.How much cash will Richard receive after-taxes and what is his after-tax rate of return? Assume Richard's marginal tax rate is 30%.

If Adam invested $25,000 in a stock paying annual dividends equal to 5% of his investment,what would the value of his investment be 10 years from now assuming that he reinvested his after-tax dividends each year? Assume Adam's marginal ordinary tax rate is 15%.

If Tom invests $60,000 in a taxable corporate bond that provides a 5 percent before-tax return,how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures? Assume Tom's marginal tax rate is 35 percent.

Nontax factor(s) investors should consider when choosing between investments include:

Kerri,a single taxpayer who itemizes deductions on Schedule A,incurs $15,000 of interest expense on funds borrowed to acquire taxable bonds.Kerri also has $20,000 of taxable interest income for the year.Assume Kerri is in a 30% marginal tax bracket.How much of the interest expense can she deduct? Assuming the same facts except that the $20,000 of investment income is a qualifying dividend rather than taxable interest income,what should Kerry do if she wants to minimize her current year tax liability?