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LOS i: Explain the benefits of tax loss harvesting and highest-in, first-out (HIFO) tax lot accounting.
Q1. Chris Manning, CFA is advising a client concerning harvesting tax losses. The client expects that her tax situation will not change over the next few years. She asks about incurring a given loss in the current year or waiting a few years to incur the loss. She asks how the decision will affect the total taxes she pays over her life. Manning should advise her that:
A) she should not incur the loss this year because the HIFO principle means her total taxes will be higher if she incurs the loss this year.
B) the total tax bill over her life will not change if her tax status does not change.
C) she should incur the loss this year because the HIFO principle means her total taxes will be lower if she does.
Q2. The main benefit of tax-loss harvesting is:
A) saving on future taxes.
B) saving on current taxes.
C) reducing both current and future taxes.
Q3. When highest-in-first-out (HIFO) accounting is allowed, it is advisable for:
A) an investor to liquidate the portion of a position with the lowest cost basis first, thereby minimizing current taxes.
B) an investor to liquidate the portion of a position with the highest cost basis first, thereby minimizing future taxes.
C) an investor to liquidate the portion of a position with the highest cost basis first, thereby minimizing current taxes. | 
发表于 2009-4-2 14:31
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