Introduction
In the brokerage business, it is an industry practice for one to be taxed if their deposits attract a form of income. In such circumstances, the taxation laws hold that the administration of taxes happens in the year in which it is received
In a process where one transfers their stock from a particular brokerage firm to the other, they are not liable to taxation since the process does not fall under the classification of a taxable event. The case of Phyllis demonstrated that she operates either a tax-deferred or a tax-free account which allows one to make stock transfers any moment they feel like doing so. In a nutshell, since the three transfers happened in the same year, the May 8 distribution taxes will not apply to Phyllis since she had not completed the one-year threshold required for taxation. In any event, company XYZ will be taxed if the amount of the stock falls at the 12% marginal tax bracket.
Specific Issues
When making investments in brokerage firms, it is critical to consider tax-efficient brokerage options to accrue as many profits as possible. Phyllis operated a tax-deferred account that allowed her to make withdrawals at any given point and charged a marginal tax. In this case, her withdrawal from company ABC attracted a marginal tax of 12 percent at the point of the maturity of her check. When she moved her stocks to company XYZ, it meant that her traditional IRA account had benefitted from the benefits of her initial tax-deferred account.
Conclusion
When operating traditional retirement accounts, the U.S. taxation laws outline that one pays pre-tax dollars. The money deposited is not liable to any form of taxation until one retires. However, any withdrawal made before retirement is subject to ordinary income taxes owing to distribution. No wonder the taxation leveled on Phyllis’ investment applied after her distribution to company XYZ. However, she was not liable for taxation after her investment was moved to a different account after 35 days. In a nutshell, although Phyllis had committed to a long-term gain investment option, she was required to pay the full amount in the form of ordinary income tax but not on the May 8 distribution which was essentially a transfer of stock from one account to another through an intermediary brokerage firm.
Support
According to the 26 U.S. Code § 305 on distributions of stock and stock rights, section three outlines that traditional IRA accounts attract taxation when withdrawals are made before the maturity of long-term investment. Principles of section 1273(a)(3) of the U.S. taxation laws provide a basis for guiding the amount of taxes and distribution liabilities in the event of such a withdrawal.
Actions to be Taken
Having noted the implication of IRA brokerage practices, a discussion with Phyllis must be addressed on the steps undertaken by both companies ABC and XYZ to identify whether a violation of the U.S. taxation regulations happened. With regards to memo preparation, the document ought to outline the key issues related to brokerage regulations in the U.S. and how it relates to the situation that Phyllis has found herself in. The facts of the case include the idea that Phyllis operated a tax-deferred account that allowed her to make withdrawals at any given point and charged a marginal tax. In this case, her withdrawal from company ABC attracted a marginal tax of 12 percent at the point of the maturity of her check.