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Planning Intermediate:
Tax Sheltering
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1.
Which of the following is true about the tax advantages of tax-free municipal bonds?
Choose wisely. There is only one correct answer.
They are free from all taxation.
They are free from state taxation.
They are generally free from federal taxation.
The are free from capital gains taxes.
They are generally free from federal taxation. Tax-free municipal bonds are not, however, free from capital gains taxes.
2.
In a tax swap, an investor sells a security that has made a capital gain and buys another similar security.
Choose wisely. There is only one correct answer.
True
False
False. In a tax swap, an investor sells a security that has incurred a capital loss and buys another similar security.
3.
Income earned from wages is taxed as passive income.
Choose wisely. There is only one correct answer.
True
False
False. Income earned from wages is taxed as active income.
4.
Which of the following is not true about 401(k) plans?
Choose wisely. There is only one correct answer.
Earnings from the plans are tax-deferred until retirement.
Contributions to traditional 401k's are made with pre-tax earnings.
Employees are limited to only one option for investing the money in their plans.
In most plans, employers match employee contributions.
Employees are limited to only one option for investing the money in their plans. This is not true of 401(k) plans.
5.
Paying your taxes in a future tax period rather than now is called _______.
Choose wisely. There is only one correct answer.
Tax evasion
Tax avoidance
Tax deferral
Tax credit
Tax deferral. Tax deferral is among the most popular reasons for investing.
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DONE