CFP ALL Flashcards
2032A
Special Use Valuation
- real estate used in farming or business
- 50% AGE
- subject to recapture is disposed or no longer qualifying within 10 years
Section 303
- close held corporation
- 35% AGE
Section 6166
- closely held business
- deferred payments of estate tax
- deferred up to 5 years, then payable in up to 10 annual installments
- 35% AGE
Estate Tax Calculation
Gross estate
- minus expenses, debts & losses: claims on estate, mortgage due, admin expenses, funeral costs to get AGE
Adjusted Gross Estate
- minus allowable deductions: charitable deductions, marital deduction, state death taxes
Taxable Estate
- add adjusted taxable gifts
- subtract gift taxes paid in last 3 years
then remove applicable credit
to get to estate tax liability
HSA Overfunding Tax
6% of the overfunding amount
option in the money
exercise price > market price
put option out of the money
exercise price < market price
estate planning technique to sell business to a family member where payments cease at death
SCIN or private annuity
debt to income ratio
36% of monthly gross income
housing cost ratio
28% of monthly gross income
SIMPLE IRA
- no ADP/ACP testing
- less than 100 employees (making 5k or more of commission)
- no after tax contributions
- can withdraw for higher education payment but no loans
- can’t have a qualified plan and a SIMPLE
- requires employer contributions each year
- maximum match is 3%, can vary 2 out of last 3 years
- subject to top heavy rules
- contributions vest immediately
- if removed prior to 2 years of service, 25% penalty plus tax rate
UBTI
unrelated business taxable income
- Dividends, interest, and royalties are excluded from the calculation of UBTI
- Employer securities purchased by an ESOP with borrowed funds exempt
Defined Benefit Pension Plan
- require employers to contribute at least 2% or average compensation times years of service up to 20%
- offset method for SS integration
- usually use the employees top 3 consecutive years of earnings up to 290k
- only pension that requires PBGC
Viatical Settlement
- physician must write that person is expected to die within 24 months
- proceeds tax free
- taxable to the settlement company that purchases said insurance from terminally ill person
Non qualified plans
- SERP
- tophat
Qualified Plans
- 401k
- profit sharing
- ESOP
- stock bonus plan
Rental Property Deduction Rules
- owner’s use for personal can’t exceed the longer of 14 days or 10% of the rental days
- loss reported on Schedule E if deductible
Section 179
- depreciable tangible personal property that is purchased for business or trade
- max deduction $1,050,000, amount is reduced dollar for dollar for acquisition amounts above $2,620,000 placed into service during 2021
- max claimed cannot exceed income in that year, rest is carryover
- example: new office desk, if vehicle must be over 6,000 pounds not under
- cost of property may be deductible vs depreciated if certain conditions met
ACP
- required for plans that provide employer matching or employee after-tax contributions
ADP
- required for plans that allow employee elective deferral contributions
Allow in-service withdrawals
- profit sharing
- 401k
- SEP
Student loan interest
only 2500 is deductible
Bond yield comparisons
Premium bonds: CR > CY > YTM
Par bonds: CR = CY = YTM
Discount bonds: CR < CY < YTM
Social security quarters
for every $1470 earnings that have SS taxed
money purchase pension plan
- easy to administer
- predictable costs
- 58K or 100% of comp whichever is less
- employer stock cannot exceed 10% of FMV of plan
- employees bear risk
- excess method for SS integration
- contributions are fixed not flexible
- favors younger employees
target benefit pension plan
- mandatory annual employer contributions
- forfeitures likely unequal
- employee bears risk
- favors older employees
Beta
measure of unsystematic risk
SEP
- no 10% penalty for withdrawals for education
- cannot purchase life insurance
- can be integrated with SS
- requires employer contributions on non discriminatory basis
- $600 min income
- employees can be excluded for 3 years or until age 21 whichever is longer
- max contribution 25%, remember to half self employment tax if shown from salary
- modification for owner: EE %/1+EE % then multiply that times the 25% max
Social Security Credits
- permanently insured, 40 credits
- to be fully insured need one credit each year since age 21
Deductible charitable contributions to religious, public, and educational institutions and private operating foundations may not exceed
50% AGI
Cash donation deduction
60% AGI, but 100% for now with CARES Act in 2021
defined benefit pension plan
- must cover the lesser of 50 employees of 40% of all eligible
- favors older employees
Penalty for excess IRA contribution
6%
weak form EMH
- technical analysis is not worthwhile
- historical info already priced in
semi-strong EMH
- current market priced reflect all available historical info
- all public info reflected
zero coupon bonds
- high yield, low volatility
- low yield, high volatility
time weighted vs dollar weighted
time weighted for manager performance
when calc, using cash flow function
time weighted: include dividends paid
dollar weighted: only purchase and sales
private placement
35 non accredited, unlimited accredited
Section 1231
- property used in a trade or business as depreciable or real property used in the trade or business that is held for more than 12 months.
- excludes property included in inventory, property held primarily for sale to customers, copyrights and similar properties, and certain publications of the US government.
- taxed as capital gain, though recapture can convert some or all of the gain as ordinary income
stock bonus plan
- defined contribution
- no required contributions
- allow gain to be deferred until sold
- employer can deduct plan contributions
cash balance pension plan
- minimum funding requirement
- cheaper than a traditional defined benefit plan
- benefit design easily understood by employees
- more expensive than cash balance
- favors older employees
- employer bears risk
- requires use of actuary
Partnerships cannot establish what retirement accounts
ESOP or stock bonus (they don’t have stock)
Power of appointment trust (A trust)
- marital deduction under first spouse to die
- second spouse to die controls ultimate disposition due to general power of appointment granted
- surviving spouse received income from the trust for life
AMT preference items
- tax-exempt interest from private activity bonds
- ISO
- drilling and mining interests
- exclusion of gain on small business stock (2122)
- Excess of the depletion deduction over the adjusted basis
section 1231
certain assets used in a taxpayer’s trade or business that are held for the long-term
- 5 year look-back
- capital gain
- depreciable tangible and intangible personal property, real property, timber, certain livestock, and unharvested crops.
Not included: inventory, copyrights and property held for sale to customers.
chronically ill person is unable to perform
2 ADLs for 90 days
defined benefit pension
- traditional defined benefit pension or cash balance
- have PBGC insurance
- favors older employees
kiddie tax
if unearned and earned income: standard deduction is the greater of $1,100 or earned income + $350 (up to standard deduction amount)
if just unearned income: first $1100 no tax, second $1100 childs tax rate, any remaining at parents rate
dependent care credit
20% of expense if AGI exceeds 43k
3k max if one individual, 6k if two or more qualifying individuals
COBRA coverage qualifying events
18 months: full time to part time and laid off
29 months: social security disability, divorce, separation
36 months: death
split dollar policy
- premiums are not tax deductible by corporation
- at employees death, corp receives back contributions
- allow for discrimination
- may be used to help fund buy/sell agreement
debt ratios
consumer: 20% of net income
housing: 28% of gross monthly income
total debt: 36% of gross monthly income
tight money policy
times of inflation, increase reserve requirements, higher interest rates, raise discount rate, sell securities in the open market
loose money policy
lower reserve requirements, lower discount rate, lower interest rates, buy securities in the market
ACP testing vs ADP
ACP - employer matching
ADP - elective deferral
QTIP
- cannot give power of appointment to spouse
- qualifies for marital deduction
Active real estate
passive losses allowed up to 25k unless filing MFS
- amounts over 100k AGI limited to half of amount over 100k
= 25k allowable - (AGI - 100k X .5) - deductions - allowable loss
AGI above 150k = no deduction
Above the line deductions AGI
- Deductions from losses on sale or exchange of property
- Deductions from rental and royalty property
- One-half of self-employment tax paid
- 100% of health insurance premiums paid by a self-employed individual
- Contributions to pension, profit sharing, annuity plans, IRAs, etc.
- Penalty on premature withdrawals from time savings accounts or deposits.
related party sale
taxable gain or loss for donee/buyer = use FMV as basis
loss for seller/parent/relative = no deduction available
american opp credit
100% of first 2k expenses on first child, 100% of next 2k expenses on second child and 25% of anything after
immunization of interest rate risk
price risk and reinvestment risk
medicare skilled nursing
100% of first 20 days, $185.50 of next 80 days. nothing over 100 days, all on person to pay
- does not include custodial care
Medicare part B
- not covered: dentures, eye exam, cosmetic surgery, preventative care/wellness visit, hearing aids
- covered: lab tests, doctor visits, medical supplies/equipment, physicians fees, outpatient hospital services for diagnosis
medicare c
A + B plus more coverage
ADL
2 out of 6
eating, dressing, bathing, continence, transferring, toileting
below the line deduction
- Charitable Contributions
- Limited Casualty Losses (see next slide)
- Medical Expenses in excess of 7.5% of AGI (made permanent)
- Limited Miscellaneous itemized deductions
- Interest on mortgage and investments, subject to limitations
- Mortgage Insurance Premiums
- Taxes (State/Sal
charitable deduction
appreciated stock: 30% AGI
cash: no limit due to CARES Act
use property or long-term capital gain: can choose FMV (30%) or basis (50%)
unrelated use/short term capital gain, long/short term loss property: Lesser of the adjusted basis or the fair market value and then compare to ceiling of 50% AGI
tax payment avoiding penalty
Most people can avoid paying estimated tax if their withholding and credits equal the lesser of 100% of the tax shown on the prior year’s return or 90% of the current year’s tax liability.
For taxpayers with AGI above $150,000 ($75,000 MFS) they will pay estimated taxes based on the lesser of 110% of prior year or 90% of current year by January 15th of the following year even through the full tax liability is due April 15th.
deductions from AGI
itemized deductions
deductions to calculate AGI
self employment health insurance
half of self employment tax
alimony paid on divorce prior to 12/21/2018
medicare part a
covers hospice
Social Security reduced benefits if taken before full retirement age
months 1-36: 5/9 X number of months early
months 37 - total months being taken early (limit to 60): 5/12 X number of remaining months early
add those two and multiply FRA benefit to get total payment with reduction
Highly compensated employee
greater than 5% owner or made more than 130k in preceding year
half year convention
annual depreciation under straight line, have to take half of the amount per year of depreciation
ex. 100k machine less any salvage value divided by 20 year useful life, divided by 2
section 1245 recapture
- sale of depreciated asset
the lesser of the gain realized or cost recovery deductions claimed
how are interest and taxes treated when calculating rental income deduction
mortgage interest and property taxes are deductible regardless of rental income
passive activity rules
- rental activity always passive unless realtor
- material participant rules: great than 500 hours in a year or greater than 100 hours compared to others involved
- 25k passive loss can be deducted from non passive income if AGI test is met AND actively participates in rental activity (will be given)
section 1244 stock
small business
- can deduct 50k loss single/100k MFJ, the remainder treated as capital loss (short or long) not long/short term loss
consumer debt ratio
less than 20% of NET income not gross like others
passive losses can be used to offset
active but not portfolio income
- closely held C corp can deduct all passive income without any active
american opp credit
100% of first 2k, 25% of next 2k
above the line deduction examples
- student loan interest ($2500 max, AGI below 70k/140k MFJ)
- alimony (if divorce finalized before 12/31/2018)
- half of self employment tax
- self employed health insurance
- IRA, HSA, 401k/403b/457 plan contributions ( based on AGI)
- net expenses paid on rental property
bad debt deduction
0 for cash basis as income only recognized when received
allowed for accrual basis
mortgage interest deduction limit
750K if after to 12/15/17, 1M if before
take above limit divided by mortgage amount times the mortgage interest = deductible on schedule A for personal home
alimony recapture
recapture in year 3 = Payment Year 1 + Payment Year 2 - 2 times Payment Year 3 - $37,500
max deductible IRA contributions when salary within phase out
Max contribution (6 or 7k based on age) Reduction = Contribution Limit × (AGI minus Lower Limit) ÷ phase out total leftover from reduction minus 6 or 7k is what you can contribute and deduct
charitable deduction for short term property
limited to 50% AGI, look at lesser of FMV or basis
below the line deduction examples
- state and local tax
- interest and taxes on personal residence
- charitable contributions
- medical expenses in excess of 7.5% AGI
medical reimbursement calc when driving to treatment
0.16 per mile
$50 per person staying at hotel per night
coverage c
50% of coverage on dwelling
if property is held elsewhere, greater of 1K or 10% of coverage amount
traditional defined benefit pension plan
- if less than 25 professional service employees (accounting, attorney, doctor, engineers) don’t have to be covered by PBGC
- mandatory additions
- unpredictable costs
- favors older
margin call price
debit of security price borrowed / 1 - maintenance
coverage F, homeowners
medical payments to others, does not cover insured or insured’s family
key employee vs. HCE test
key employee: higher than 5% owner regardless of pay, higher than 1% owner and over 150k pay, officer making more than 185k
HCE: greater than 5% owner OR over 130K pay (unless payment percentage noted in question)
beta
measures systematic, non diversifiable risk
dependent care tax credit
up to 6K of allowable expenses for 2 or more dependents, 20% of allowable expenses
if salary below 15K, 35% of allowable expenses
phases out one percentage less for every 1k more made in salary
depreciation recapture tax rate
25% not marginal tax rate if straight-line depreciation
accelerated depreciation taxed at marginal tax rate
any long-term capital gain aside from recapture tax is then taxed at LTGC rates and added together
defined contribution limit for self employed
25% of net income (after tax)
FICA taxes
7.65%
target benefit
favors older
employees bare investment risk
social penetration theory
orientation —> exploration —> affective exchange —> stable exchange
non directive counseling skills
- clarification
paraphrasing
- restatement paraphrase
- meaning paraphrase
- summarizing
- reflection
directive communication skills
- interpretation
- reframing
- explanation
- advice
- advice with permission
- suggestion
- urging
- confrontation
- ultimatum
straight line depreciation years used
CAT-CORN
hotel/residential real (commercial buildings): 39 years
residential rental property: 27.5 years
computers/autos/trucks (CAT): 5 years
office furniture: 7 years
elastic vs inelastic demand
elastic: price goes up, demand doesn’t change but not bought
inelastic: price goes up, demand doesn’t change but still bought
perfectly elastic: price has not effect
adoption credit
lesser of tax due for current year, $14,440 credit for 2021 or total qualifying adoption expenses
Lifetime Learning Credit
Spending 10k or more in a year:
20% of qualified expenses max 2K
if spend less than 10k in one year:
20% qualified
child tax credit
$2,000 per child against their tax obligation, up to $1,400 per child can be refundable if there is no tax obligation due.
defined benefit must cover
lesser of 50 employees or 40%
state and local taxes/sales tax and real estate are capped at
10K from AGI
Defined benefit vesting schedule
5 year cliff or 3-7 year graded
Defined contribution vesting
3 year cliff or 2-6 year graded
