Tax Exam Number 3

Generally interest income is taxed at preferential capital gains rates and dividend income is taxed at ordinary rates.

Taxable fringe benefits usually present a luxury perk while nontaxable fringe benefits are generally excluded for public policy reasons.

An investments time horizon does not affect after tax rate of return on investments taxed annually.

SUM OF THE YEARS DIGITS , is not an allowable method under any condition for macrs?

An investment is ordinary assets because it is held for sale to customers in the ordinary course of business.

Qualified dividends are always taxes at a 15% preferential rate.

Capital gains (losses) netting process for taxpayers without 25 or 28% capital gains requires them to (1) net short term gains and long term gains (2) net short term losses and long term losses and (3) net the outcome to yield a final gain or loss to place on the tax return.

Dave and Jane file a joint return. They sell a capital assets at a $150,000 loss. Even though they have no capital gains, $6,000 of the loss can still be deducted in the current year.

Two advantages of investment in capital assets are (1) gains are deferred and (2) gains are generally taxed at preferential rates.

Capital loss carryovers for individual are carried forward indefinitely.

Qualified retirement plans include defined benefit plans but not defined contribution plans.

Defined benefit plans specify amount of benefit an employee will receive on retirement while defined contribution plans specify the amounts that employers and employees will contribute to an employees plan.

The standard retirement benefit and employee will receive under a defined benefit plan depends on the number of years of service the employee provides but does not consider the amount of the employee compensation near retirement.

Jacob participates in his employers defined benefit plan. He has worked for his employer for four full years. If his employer uses a five year cliff vesting schedule Jacob will need to work another year in order to vest in any of his defined benefit plan retirement benefits.

Both 401 k plans and roth401 k plans are forms of defined contribution plans.