Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
What does "stepped-up basis" mean?
An investment's basis changes to that of the market value on the day of your death. Stepped-up basis is most commonly known in estate planning, where if you die, the basis will step up to that of the day of your death. Whoever inherits the stock will thus enjoy less tax on it.
2.
All other things being equal, which would you rather own in a taxable account?
The stock of a solid business that grows steadily over time but pays no dividend. You would prefer to own in a taxable account the stock in a solid business that grows steadily over time, but pays no dividend. This would allow you to hold the stock for a long time, deferring the realization of capital gains. Dividends would be taxable.
3.
If you buy a stock for $20 and sell it for $30, the $10 gain is a form of ordinary income.
False. The $10 gain is a capital gain, and may be taxed differently from ordinary income; it depends on how long you held the stock.
4.
Which type of tax-advantaged account offers the potential for tax-exempt distributions?
A Roth IRA. A Roth IRA offers tax-free distributions, as long as certain rules are met. The downside is that Roth IRAs must be funded with after-tax dollars.
5.
If you sell a stock six months after buying it and you realize a profit on it, your gain will be taxed at _______.
The ordinary income rate. This is a short-term gain and is therefore taxed at the ordinary income rate, which is higher than the tax rate on long-term gains.
