Tax Chapter 11 - InvestmentsandBasis...

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Investments and Basis I.  Annually-taxed investments Interest from bonds/savings accounts  Dividends from stock are taxed annually    After-tax rate is as previously computed:   ATR = PTR (1 – MTR) If investment exceeds 1 year, future value = I • (1+ATR) n EXAMPLE 1:   Ann invests $10,000 in a bond bearing interest of 6%.  What is her  accumulated wealth after 3 years if she has a MTR of 25%? ATR = .06(1 – .25) = .045 FV = 10,000(1 + .045) 3  = $11,411.66 EXAMPLE 2 :  Sammy invests 10,000 in preferred shares with a dividend rate of 6%.  His MTR on dividend income is 15%.  How much does he have after 3 years? ATR = .06(1 – .15) = .051 FV = 10,000(1 + .051) 3  = $11,609.36 II. Deferral-taxed investments    A.  Definition and tax consequences Capital asset is    Holding period – length of time asset has been held Asset held for more than 1 year = Long-term asset (favorably max tax  rate of 15%) Asset held for 1 year or less = Short-term asset EXCEPTIONS to 15% rate:   Chapter 11
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Capture 1250 gain = 25% Collectables and section 1202 stock = 28% Gains or losses = selling price -  adjusted basis     STCG 25,000 STCG 9,000 LTCL 1,000 LTCL 18,000 LTCL 10,000 (used to offset STCG first) LTCG 8,000 LTCL 16,000 STCG 25,000 STCG 21,000 STCG 14,000 LTCL 18,000 LTCL 7,000 LTCG 8,000 STCG 8,000 STCL 12,ooo LTCG 3,000 STCL 25,000 STCL 29,000     26,000 STCL carried forward LTCL 18,000 LTCL 7,000        7,000 LTCL carried forward LTCG 8,000 STCG 8,000 STCL 12,ooo LTCG 3,000 2
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If there are multiple sales in a year, need to determine the character of net gains  and losses:   Taxation of the possible outcomes of the netting procedure:
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This note was uploaded on 05/26/2011 for the course ACCT 5400 taught by Professor Staff during the Spring '08 term at University of Georgia Athens.

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Tax Chapter 11 - InvestmentsandBasis...

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