Question

Amanda decided to wait to sell her investment in ABC, Inc. until she had owned the stock for more than one year. Because she waited, she was able to pay tax on the gain at a lower rate than her marginal rate. Which of the following choices best describes the result of Amanda's decision?

A) Amanda engaged in tax evasion.
B) Amanda benefited from a timing strategy.
C) Amanda experienced a tax deferral.
D) Amanda incurred tax penalties.

Answer 1

Amanda's decision resulted in tax deferral, allowing her to pay tax on the gain at a lower rate than her marginal rate.

Step-by-step explanation:

Amanda's decision to wait to sell her investment in ABC, Inc. until she had owned the stock for more than one year resulted in tax deferral. Tax deferral means postponing the payment of taxes on capital gains to a later date. By waiting to sell her investment for more than one year, Amanda was eligible for long-term capital gains tax rates, which are typically lower than ordinary income tax rates. This allowed her to pay tax on the gain at a lower rate than her marginal rate.