Question

Which of the following entries on Form 1099-DIV indicates long-term tax treatment, regardless of the amount of time a taxpayer actually owned shares of a mutual fund?

Cash liquidation distributions.

Noncash liquidation distributions.

Nondividend distributions.

Total capital gain distributions.

A taxpayer must make an adjustment on Schedule B, Interest and Ordinary Dividends, and attach the form to their return if they receive which of the following?

Interest from a certificate of deposit.

Nominee interest.

Tax-exempt interest.

U.S. Savings Bond interest.

James (31) is a single taxpayer. In addition to earned income of $192,000 from his job as a technical consultant, James earned $15,000 in taxable interest income in 2019. Assuming he does not have any other income or adjustments for the tax year, what is James' net investment income tax?

$0

$266

$570

$836

Answer 1

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Q) Which of the following entries on Form 1099-DIV indicates long-term tax treatment, regardless of the amount of time a taxpayer actually owned shares of a mutual fund?

Ans : Form 1099-DIV: Dividends and Distributions is an Internal Revenue Service (IRS) form sent by banks and other financial institutions to investors who receive dividends and distributions from any type of investment during a calendar year.

A mutual fund is a regulated investment company that pools funds of investors allowing them to take advantage of a diversity of investments and professional asset management.

You own shares in the mutual fund but the fund owns capital assets, such as shares of stock, corporate bonds, government obligations, etc. One of the ways the fund makes money for you is to sell these assets at a gain.

If the mutual fund held the capital asset for more than one year, the nature of the income is capital gain, and the mutual fund passes it on to you as a capital gain distribution. These capital gain distributions are usually paid to you or credited to your mutual fund account, and are considered income to you. Form 1099-DIV, Dividends and Distributions distinguishes capital gain distributions from other types of income, such as ordinary dividends.

Consider capital gain distributions as long-term capital gains no matter how long you've owned shares in the mutual fund.

Hence the option is (d) Total capital gain distributions.

Q) A taxpayer must make an adjustment on Schedule B, Interest and Ordinary Dividends, and attach the form to their return if they receive which of the following?

Ans :

Nominee Interest

1. Report the Form 1099-INT on Schedule B.

2. After the last entry on line 1, enter a subtotal of all interest. Below the subtotal enter 'Nominee Distribution' and list the total interest received as a nominee as a negative amount.

3. Subtract the nominee interest from the subtotal and enter the result on line 2.

4. Taxpayer must issue a Form 1099-INT for the nominee amount unless the owner of the income is taxpayer's spouse. List the taxpayer as payer and the owner as recipient. File Form 1099-INT and Form 1096 with the IRS.

So , option (b) Nominee interest is correct

Q ) James (31) is a single taxpayer. In addition to earned income of $192,000 from his job as a technical consultant, James earned $15,000 in taxable interest income in 2019. Assuming he does not have any other income or adjustments for the tax year, what is James' net investment income tax?

Ans : What Is Net Investment Income (NII)?

Net investment income (NII) is income received from investment assets (before taxes) such as bonds, stocks, mutual funds, loans and other investments (less related expenses). The individual tax rate on net investment income depends on whether it is interest income, dividend income or capital gains.

Taxing Net Investment Income

The net investment income is subject to a 3.8% tax and applies to individuals with an NII and modified adjusted gross income (MAGI) above the thresholds

MAGI limit for a single individual is $ 200000.

The net investment income tax is applied to the lesser of the net investment income or the MAGI amount in excess of the predetermined limit. For James, a single tax filer with annual gross income of $192,000 and net investment income of $15,000 has a MAGI of $192,000 + $15,000 = $207,000. Since this amount is more than the limit by $209,055 - $200,000 = $7,000 ,James will pay net investment income tax of 3.8% x $7,000 = $266. i.e.Option (b)