A Foolishly Taxing Quiz
By David Wolpe (TMFDbunk) and Roy Lewis (TMFTaxes)
December 3, 1997

In celebration of the impending new year, and in the hope that the Fool can supercharge your proactive impulses, we offer up the following tax quiz. With it tightly in hand, you can answer a surprisingly random array of questions about taxes, end-of-year planning, and kids.

Be sure to consult the key at the bottom to find out what it says about you, your family, your work ethic, your pathetic shortcomings, your glorious victories, your agonizing defeats, and your sharpness of mind.

1. Stock sold at a loss, then repurchased within 30 days, is:

1. Silly Sale
2. Straddle Sale
3. Bad Debt Sale
4. Wash Sale
5. Option Sale

Clue 1: No option on this
Clue 2: Don't straddle this one
Clue 3: Did you wash out?

A: Wash Sale. This means that you don't get to write the loss off your taxes.

2. The "kiddie tax" is imposed on all of the income noted below except:

1. Short-Term Capital Gain
2. Wages
3. Long-Term Capital Gain
4. Dividends
5. Interest

Clue 1: Can't gain on this
Clue 2: Losing interest
Clue 3: Make a small wager

A: Wages. The "kiddie tax" is imposed on unearned income. Wages are earned.

3. Regarding Federal taxation, what is the significance of the year 1916?

1. Estate Taxes enacted
2. Social Security tax enacted
3. First income tax passed
4. Minimum tax adopted
5. Subchapter S adopted

Clue 1: Don't be social
Clue 2: Pastrami yes, Sub no
Clue 3: Estate your case

A: Estate Taxes were enacted. This occurred in 1916 in anticipation of the WWI war effort.

4. If you have capital losses that you can't currently deduct, what can you do with them?

1. Carry them forward
2. Carry them back
3. Apply against wages
4. Create a Net Loss
5. Convert to Contributions

Clue 1: No converts here
Clue 2: Don't take me back
Clue 3: Looking forward

A: Carry them forward. Unused capital losses can be carried forward to future tax years until they're used up.

5. Which of the following would NOT be deemed a currently deductible investment expense?

1. Investment Magazines
2. Investment Advice Fees
3. Tax Advice Fees
4. Broker Stock Commissions
5. Safe Deposit Box Fees

Clue 1: No advice is good advice
Clue 2: Not safe at any fee
Clue 3: Go for broker

A: Broker Stock Commissions. Commissions MUST be added to the cost of the stock purchased. They are NOT deductible.

6. If you receive a gift of appreciated stock, then sell it for a gain, your basis is:

1. Fair Market Value
2. Stepped Up Basis
3. Basis of the Giver/Donor
4. Zero
5. Basis plus boot paid

Clue 1: Just not fair
Clue 2: Out of step
Clue 3: Be a Giver, not a Taker

A: Basis of the Giver/Donor. Stock received as a gift will generally have the same cost for you as for the donor.

7. Which of the following IS a deductible medical expense:

1. Dancing Lessons
2. Funeral Expenses
3. Maternity Clothes
4. Breast Enhancement
5. Sex Therapy

Clue 1: Not a dancin' machine
Clue 2: Don't keep abreast
Clue 3: Sex-rated

A: Sex Therapy. IRS RevRul 75-187 allows this deduction upon doctor's advice if therapy is at a hospital.

8. Who MOST cares about the FIFO rule?

1. SEC
2. Internal Revenue Service
3. Social Security
4. Your heirs
5. ASPCA

Clue 1: Losing your heir
Clue 2: Anti-social
Clue 3: Be of Service

Correct Answer: Internal Revenue Service. First In, First Out: the first of a company's shares you bought will be the ones sold first.

9. A maximum tax rate of 28% applies to which sort of asset sale?

1. Short term
2. Ordinary income
3. Inheritance
4. Long-term gain
5. Liquid

Clue 1: Don't be ordinary
Clue 2: Ice the liquid
Clue 3: Get a'long

Correct Answer: Long-term gain

This rate is especially attractive to investors who normally cough up 36% or higher in taxes.

10. What is the maximum total capital loss you can deduct from your taxes each year?

1. All of them
2. Half of them.
3. One quarter of them
4. Three thousand
5. Six grand if married

Clue 1: All is lost
Clue 2: Can't go halfsies
Clue 3: Be a three'l seeker

A: Three thousand. If you have additional losses, they are carried forward to the next tax year.

Key:

If you got number one right, then you know what a wash sale is, and you rightly surmised that "Silly Sale" is far too frivolous a term to be used in financial circles.

If you were correct on number two, you know your kiddie tax law. You probably also play with LEGOs and can't wait for the next McDonald's/Disney animation tie-in. This in turn means you have high cholesterol. Eat more oat bran.

If you happened to get number three right, which has to do with the year 1916, then you're probably in your mid-nineties and have personal memories of the Bolshevik revolution.

If you got any of numbers four through nine right, you're a 49ers fan, and a proud member of the Great Middle Class. Of course, you may also just be guessing.

If you got the tenth question right, you're a CPA, and you probably got the first nine right as well. Ringer!

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.