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Taxation for Investors
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Flashcards
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Qualified Dividends
Dividends that are subject to lower tax rates as they meet specific criteria set by the IRS.
Marginal Tax Rate
The rate of tax applied to your last dollar of taxable income.
Short-Term Capital Gains
Profits from the sale of an asset held for one year or less, taxed at ordinary income tax rates.
Municipal Bonds
Bonds issued by state and local governments; the interest on these bonds is often exempt from federal income tax.
Tax Deduction
A reduction of income that is able to be taxed, which results in a lower overall tax bill.
Wash-Sale Rule
A tax regulation that prohibits a taxpayer from claiming a loss on the sale and repurchase of identical stock or securities within a 30-day period.
Deferred Tax Asset
A tax reduction due to allowable deductions or credits that a company will be able to use to reduce future tax liability.
Capital Gains Tax
A tax on the profit realized from the sale of a non-inventory asset that was greater than the original purchase price.
Foreign Tax Credit
A non-refundable tax credit for income taxes paid to a foreign government as a result of foreign income tax withholdings.
Net Investment Income Tax (NIIT)
A 3.8% tax on certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts.
Long-Term Capital Gains
Profits from the sale of an asset held for more than one year, subject to lower tax rates than short-term gains.
Retirement Account Rollover
The process of transferring funds from one retirement account to another, often without incurring tax penalties.
1031 Exchange
A swap of one investment property for another that allows capital gains taxes to be deferred.
Capital Gains Distribution
Payments made to mutual fund shareholders from gains realized on the sale of securities in a mutual fund's portfolio.
Cost Basis
The original value of an asset for tax purposes, usually the purchase price, adjusted for stock splits, dividends, and return of capital distributions.
IRA Contribution Limits
The annual limit set by the IRS on the amount of money that can be contributed to an Individual Retirement Account (IRA).
Alternative Minimum Tax (AMT)
A supplemental income tax required in addition to baseline income tax for certain individuals, estates, and trusts that have exemptions or special circumstances allowing for lower levels of regular tax.
Tax-Loss Harvesting
The practice of selling securities at a loss to offset capital gains tax liability.
Dividend Received Deduction (DRD)
A provision that allows companies to deduct dividends received from their investments in other companies from their taxable income to avoid double taxation.
Tax Bracket
A range of incomes taxed at a given rate, which typically increases progressively with higher income.
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