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Stocks 201: Stocks and Taxes

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1.
What does "stepped-up basis" mean?
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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.
The idea behind creating a class of "qualified dividends" is to prevent _______.
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Double taxation. The idea behind making some dividends qualified is to reduce double taxation -- that is, taxation of the same profits at both the corporate and shareholder levels.
3.
You must generally begin making mandatory withdrawals from 401(k) and traditional IRA accounts when you reach what age?
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73. You must generally begin making mandatory withdrawals from 401(k) and traditional IRA accounts when you reach 73.
4.
If you buy a stock for $20 and sell it for $30, the $10 gain is a form of ordinary income.
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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.
5.
All other things being equal, which would you rather own in a taxable account?
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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.