Series 65 Tax Considerations Quick Reference

Series 65 Tax Considerations – Quick Reference Guide

Tax knowledge is essential for success on the Series 65 exam. Many questions involve understanding how different investment products are taxed, how various account types affect tax treatment, and what tax strategies are appropriate for different client profiles.

This quick reference guide summarizes the key tax topics you need to know—organized for easy recall and exam-day confidence.

💼 1. Taxation of Investment Income

• Interest Income
  • Taxable at ordinary income rates
  • Includes corporate bonds, CDs, Treasury securities
  • Municipal bond interest: Federal tax-free, possibly state-taxable
• Dividend Income
  • Qualified dividends: Taxed at long-term capital gains rates (0%, 15%, or 20%)
  • Non-qualified dividends: Taxed at ordinary income rates
• Capital Gains
  • Short-term (≤1 year): Taxed as ordinary income
  • Long-term (>1 year): Taxed at 0%, 15%, or 20% based on income level

🏦 2. Tax-Advantaged Accounts

• Traditional IRA / 401(k)
  • Contributions: Pre-tax
  • Growth: Tax-deferred
  • Withdrawals: Taxed as ordinary income
• Roth IRA / Roth 401(k)
  • Contributions: After-tax
  • Growth & Withdrawals: Tax-free (if qualified)
• 529 Plans (Education Savings)
  • Contributions: After-tax
  • Growth: Tax-deferred
  • Withdrawals: Tax-free if used for qualified education expenses

🧾 3. Taxation of Trusts and Estates

• Grantor Trusts
  • Income taxed to the grantor
• Non-grantor Trusts and Estates
  • Pay tax on income retained
  • Beneficiaries pay tax on distributed income
  • Trusts reach the highest federal tax bracket quickly

📉 4. Tax Loss Harvesting

• Selling securities at a loss to offset capital gains
• Losses can offset up to $3,000 of ordinary income per year
• Wash sale rule: Cannot repurchase the same or substantially identical security within 30 days

🔁 5. Step-Up in Cost Basis

• Applies when assets are inherited
• The new cost basis = fair market value at the date of death
• Reduces capital gains tax for the beneficiary upon sale

🧠 6. Tax Strategy Scenarios on the Exam

Expect questions like:

• “Which investment is most tax-efficient for a high-income client?”
• “What is the tax consequence of withdrawing from a Roth IRA before age 59½?”
• “How should a client offset gains from a profitable stock sale?”

To prepare:

• Compare ordinary income vs capital gains rates
• Identify appropriate accounts for each client’s situation
• Understand penalties and exceptions for early withdrawals

🚀 Master Tax Concepts with Confidence

Access our full Series 65 course to review tax strategies, exam-style scenarios, and advanced practice quizzes—designed to help you pass the first time.

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