Deck 5: The Tax Environment

Question 1

A small firm may offer a Roth IRA instead of a 401(k).

Answer 1

False

Question 2

Only the earnings,and not the amount invested,are taxed when distributed from a 401(k).

Answer 2

False

Question 3

A tax is regressive if the tax rate falls as income declines.

Answer 3

False

Question 4

Capital losses may not be used to offset capital gains.

Question 5

The anticipation of a lower tax rate in the future is an argument for a Roth IRA instead of a Keogh account.

Question 6

Short-term capital losses are used to offset short-term losses.

Question 7

Contributions to a Roth IRA are not tax-deductible.

Question 8

A tax-deferred annuity avoids taxes when the proceeds are distributed to the owner.

Question 9

Pension plans permit investors to defer income tax.

Question 10

Taxes are levied against a base such as property.

Question 11

A Keogh plan is a pension plan for an individual not covered by a pension plan at place of employment.

Question 12

A tax shelter is not synonymous with tax evasion.

Question 13

An employee may exercise a stock option and not pay any taxes until the stock is sold.

Question 14

Securities must be sold before capital gains taxation applies.

Question 15

It is primarily the marginal tax rate that affects investment decision making.

Question 16

Estate taxes are levied against the value of one's assets as of the day of death.

Question 17

The potential savings from a 401(k)plan increases as the marginal tax rate decreases.

Question 18

Short-term capital gains are subject to higher tax rates than long-term capital gains.

Question 19

An IRA is a tax-deferred pension plan for the self-employed.

Question 20

Income earned on savings in a life insurance policy is exempt from current income taxation.

Question 21

A retirement account for the self-employed is called a

A) 401(k) plan
B) Keogh account (HR10 account)
C) 10-K report
D) tax-deferred annuity

Question 22

Examples of tax shelters for individuals include
1)interest on municipal bonds
2)realized short-term capital gains
3)Keogh accounts

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices

Question 23

Examples of capital gains include sales of
1)IRA accounts
2)stocks sold for a profit
3)real estate sold for a profit

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices

Question 24

The traditional IRA is

A) a tax-deferred retirement account for individuals not covered by a corporate pension plan
B) a taxable retirement account for individuals not covered by a corporate pension plan
C) a means to generate tax-free income
D) a means to increase current income

Question 25

Net short-term capital losses are used to offset

A) dividend income
B) long-term capital gains
C) 401(k) contributions
D) tax credits

Question 26

With a Roth IRA,the individual

A) may deduct the annual contributions
B) earns tax-free income
C) defers taxes
D) avoids estate taxes

Question 27

Bill
sold Stock A for a short-term capital gain of $3,500
sold Stock B for a short-term capital loss of $3,100

Question 28

Barbara
sold Stock A for a $6,000 short-term loss
sold Stock B for a $2,000 long-term gain

Question 29

Brian
sold Stock A for a long-term capital gain of $3,700
sold Stock B for a long-term capital loss of $5,100

Question 30

Which of the following is not illustrative of a tax-sheltered retirement plan?

A) Keogh account
B) IRAs
C) 401(k) plans
D) cash value of life insurance

Question 31

Which of the following currently reduces taxes?
1)contributions to an IRA
2)contributions to a Roth account
3)purchases of life insurance
4)contributions to a 401(k)plan

A) 1 and 2
B) 1 and 3
C) 1 and 4
D) 2 and 4

Question 32

Bob
owns Stock A that paid $350 in dividends
sold Stock B for a long-term capital gain of $1,200

Question 33

A 401(k)plan is a

A) tax-deferred retirement plan
B) savings plan for the retired
C) plan to increase current tax-exempt income
D) dividend or interest enhancement plan

Question 34

Roberta owns
a savings account that paid annual interest of $1,000
stock that paid a dividend of $1,000

Question 35

The marginal tax rate

A) is the tax on the last dollar of income
B) is the tax on the first dollar of income
C) is the same as the average tax rate
D) has little impact on investment decision making

Question 36

An income tax is progressive if
1)as income increases,taxes increase
2)as income increases,the tax rate increases
3)as income decreases,taxes decrease
4)as income decreases,the tax rate decreases

A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4

Question 37

Estate taxes are
1)levied on the value of an estate's assets
2)levied on the value of an estate's liabilities
3)avoided by leaving all of one's assets to one's children
4)avoided by leaving all of one's assets to one's spouse

A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4