Question

"Customer Z is a single 26-year-old man who earns $125,000 annually. He informs you that he is getting married and that his new wife's income of $75,000 per year will put them into the highest federal tax bracket. The couple will have investable income of $25,000 per year. The couple wishes to buy a house in 5 years that will be substantially more expensive than the condominium in which they currently reside. To meet the customer's needs for the large cash down payment in 5 years and to reduce taxable income, the BEST recommendation is to:"

Answer 1

Answer:

In order to reduce taxable income and at the same time meet the customer's need for a large cash down payment, you should advice him to invest in stocks. The stock market generally yields high returns and since the customer is young, he can afford the risk. Also, and probably most important, capital stock gains are taxed at a much lower rate than interest income (vs investing in bonds).