This unit covered three major areas of tax knowledge tested on the Series 65 exam: individual income tax, entity and trust taxation, and wealth transfer tax. Use these reference tables to reinforce the key distinctions and numbers.
Key Numbers Reference
| Item | Amount/Rate |
|---|---|
| Long-term capital gains rates | 0%, 15%, or 20% |
| Max ordinary income rate | 37% |
| Net Investment Income Tax (NIIT) surtax | 3.8% (modified adjusted gross income above $200K single / $250K married filing jointly) |
| Net capital loss against ordinary income | $3,000/year ($1,500 married filing separately) |
| Qualified dividend holding period | More than 60 days in the 121-day period beginning 60 days before the ex-dividend date |
| Federal tax brackets | 10%, 12%, 22%, 24%, 32%, 35%, 37% |
| Required minimum distribution (RMD) starting age | 73 (born 1951-1959) or 75 (born 1960+, effective 2033) |
| Missed RMD penalty | 25% (reduced to 10% if corrected within 2 years) |
| Alternative Minimum Tax (AMT) rates | 26% and 28% |
| Income-Related Monthly Adjustment Amount (IRMAA) threshold (2026) | $109,000 single / $218,000 married filing jointly (2-year lookback) |
| C-corporation tax rate | 21% flat |
| Trust top bracket threshold | ~$16,000 |
| REIT minimum distribution | 90% of taxable income |
| Estate tax exemption (2026) | $15,000,000/individual |
| Annual gift exclusion (2026) | $19,000/recipient |
| Gift splitting (married) | $38,000/recipient |
| Estate/gift tax top rate | 40% |
| Portability (married couple) | Up to $30,000,000 |
Capital Gains Decision Framework
| Situation | Tax treatment |
|---|---|
| Held 1 year or less | Short-term: ordinary income rates (up to 37%) |
| Held more than 1 year | Long-term: preferential rates (0%, 15%, 20%) |
| Net capital loss after offsetting gains | Deduct up to $3,000/year against ordinary income |
| Unused capital loss | Carry forward indefinitely |
| Repurchased within 30 days before or after the sale (61-day window) | Wash sale: loss disallowed, added to new basis |
| Inherited asset | Basis resets to FMV (step-up or step-down): embedded gains eliminated for an appreciated asset |
| Gifted asset | Carryover basis: embedded gains preserved |
Entity Taxation Quick Reference
| Entity | Taxation Level | Double Tax? | Pass-Through? |
|---|---|---|---|
| C corporation | Entity + shareholder | Yes | No |
| S corporation | Shareholder only | No | Yes |
| Partnership/LLC | Partner/member only | No | Yes |
| REIT | Shareholder (if 90%+ distributed) | No (if compliant) | Yes |
| Trust (simple) | Beneficiary (on distributed income) | No | Yes |
| Trust (complex) | Trust and/or beneficiary | Possible | Partial |
A trust is simple if it meets all three conditions:
- Distributes all its income to beneficiaries annually
- Cannot distribute principal
- Makes no charitable contributions
A trust is complex if it fails any of those three conditions, meaning it does any of the following:
- Accumulates income
- Distributes principal
- Makes charitable contributions
The classification is made year by year based on what the trust actually does, not on a label in the trust document.
Exam Question Framework
When you see a tax question, ask yourself:
- What type of income? Ordinary income, qualified dividends, short-term capital gains, or long-term capital gains each have different rates
- What is the holding period? More than 1 year = long-term = preferential rates
- What entity holds it? C-corp = double tax, S-corp/partnership/MLP = pass-through, REIT dividends = ordinary income, trust = compressed brackets
- Is there a basis issue? Inherited = resets to FMV (step-up or step-down), gifted = carryover, wash sale = disallowed loss added to new basis
- Are there planning implications? IRMAA (2-year lookback), AMT (ISOs, private activity bonds), RMDs (age 73/75), gift vs. hold until death