CFP Review Flashcards
What securities act covers the Primary Market
Securities Act of 1933
What securities act covers the Secondary Market
Securities act of 1934
In the secondary market describe the issuing company’s role
issuing company is not involved
Describe the primary market’s function.
New Securities sold to the public for the first time (IPO)
What is the Holding Period Return
Capital Gains + Dividends / Initial Investment
HPR assumes dividends are?
Not reinvested
What is the annual yield formula?
Total Annual Income / Total Investment
Who uses the TWRR? How is it calculated using HP12C
TWRR is the global standard for fund performance, it measures period-to-period performance of appreciation or depreciations
(50)PV - what did I pay (money going out)
80FV - What was I returned
4N - How long did I hold it
i - Solve for what the return is over the period
Who uses the Dollar Weighted Return (DWRR)? How is it calculated using the HP12C?
Is appropriated for specified client returns, accounts for cashflows and when at what price level something is paid.
100 CHS g CF0 - Enter the cash flow going out that is the initial cash flow
200 CHS g CFJ - Enter the cash flow paid into the investment
800 g CFJ - Enter the positive cashflow received at the end of the investment
f IRR - Calculate the IRR which is the DWRR
How is the geometric mean calculated on the HP12C?
N = number of time periods
PV = -1 [ALWAYS NEGATIVE 1]
FV = (1.02)(1.01)(.90) = X [Calculate the mean of the returns]
i = calculate the geometric mean which was the return
What is standard deviation?
Total investment risk = Systematic Risk + Unsystematic Risk
What type of risk can not be eliminated by diversification?
Systematic risk Measured by Beta
What are the Standard Deviation probability zones?
68%/95%/99%
What is the tax exclusion for Personal residence sale gains?
250k (single) 500K(married)
What is the educational assistance exclusion amount?
$5250
How much self employment tax can you deduct?
1/2
How much student loan interest is deductible?
And what is the phase out range?
$2,500
Single 75-95K
MFJ 155-185k
How much SEP is deductible?
Lessor of 66k or 20% Self Employment Earnings
How much SIMPLE is deductible?
15k over 50 +3,500
What is the IRA contribution phase-out range for single taxpayers
73k - 83k
What is the IRA contribution phase-out range for MFJ taxpayers
116k - 136k
If someone is not covered by a workplace retirement plan but their spouse has a retirement plan what is the IRA contribution Phaseout range
218k - 228k
What is the itemized deduction for SALT?
10k
What must be met to deduct qualified medical expenses?
Expenses must exceed 7.5% AGI
What is the additional deduction amount for individuals 65+ and/or blind filing single?
$1,850 and it is doubled if they are both blind and over 65
What is the additional deduction amount for individuals 65+ and/or blind filing married?
$1,500 and it is doubled if they are both blind and over 65
What is the tax penalty for fraud?
75%
An S-corp is limited to how many owners?
100
How long does a CFP have to provide written notice to the board?
30 days
The code of Ethics consist of what? 4A-ME
Act Honest
Act in client best interest
Avoid conflict of interest
Act in a positive manner
Maintain client privacy
Excercise Care
The fiduciary duty consists of
Duty of Care
Duty of Loyalty
Duty to follow client instructions
CFP must report material changes within?
90 days
What are the 7 steps to the financial planning process?
Understand client’s financial circumstance
Identify goals
Analyze the current course of action
Develop Financial Planning recommendations
Present Financial Plan
Implement Financial Plan
Monitor Financial Plan
How long does a CFP have to respond to the board?
30 days?
What is the minimum and maximum suspension from the CFP board?
90 days and 5 years
What is the GDP formula?
Consumption + Investment + Government + Net Exports
What does price inelastic mean?
demand responds little to price change
What are the 4 areas of risk management
Risk Avoidance
Risk Reduction
Risk Transfer
Risk Retention
What is the HSA contribution limits
Self 3850 Family 7750
What is the HSA catch up contribution age and amount
55+ $1,000
COBRA is required by employers with over how many employees?
20 or more
For cobra plans what is the cost limit?
Cannot exceed 102% of cost paid by employee and employer
What are the highest 2 levels of LTC
Nursing home care (highest), Assisted Living Facility
What 2 conditions are not included in ADL’s for LTC?
Blindness and Inability to walk
To be eligible for LTC, what must be satisfied?
2 ADLs or Cognitive impairment
What is the waiting period for SS disability?
5 months
What is Option A Universal Life?
Under Option A, the death benefit remains level through the life of the policy. This means the amount your beneficiaries will receive upon your death does not change over time, assuming no loans or withdrawals are made against the policy value.
What is Option B Universal Life?
Death benefit is face amount plus cash value
How is the purchasing power preservation for Annuity Due calculated for retirement benefits?
FV = (what is the amount needed on day one of retirement)
N = years from retirement until death
i = 1 + ROR/ 1 + Inflation
PV = solve for PV of AD
PV + FV = funds needed
How is the Capital Utilization of a PV AD calculated?
Solve 2 PV calculations!
(Beg mode)
PMT = Enter payment client wants to receive each year
N = enter years of retirement until death
FV = 0 [Always 0 they will die with no money left]
i = ROR - Inflation / 1 + Inflation
PV = Solve for PV of AD
FV = PV of AD from step one [how much money will i need in the future]
N = same from step 1
i = no inflation calculation just ROR
PV = solve for PV
PV1 + PV2 = Solution
What are the DC profit sharing plans (4)
Traditional Profit sharing
401(k)
ESOP
Stock Bonus Plan
What are the DC pension plans?
Money Purchase Pension Plan
Target Benefit Plan
What is the max combined EE/ER contributions
66k
What is the max elected deferral of a DC plan?
22,500
What is the required vesting period for a DC plan?
3 year cliff 2-6 graded
What is the max compensation considered in a DC plan?
333,000
Which DC plans may only contribute no more than 10% in employer stock?
Money Purchase Plan
Target Benefit Plan
What is the max vesting schedule for DB pension?
5 year cliff 3-7 year graded
What is the max vesting schedule for cash balance pension?
3 year cliff
What is the special catch-up for 403(b) plans above age 50+
33k total (22,500 + 7,500 + 3,000)
Section 403B plans are limited to what kind of investments?
Mutual Funds and Annuities
How is a TIC account set up?
Multiple owners with an individual interest
How is a TIE account set up?
Two spouses with approval
What form is used for AVD taxes?
Form 706
What type of power of attorney does not lapse?
Durable Power of Attorney
What is the annual gift tax exclusion for an unlimited amount of donees?
17k
Which form is used for gift tax filing?
Form 709
How many months do you have to file a qualified disclaimer?
9 months
If the FMV of a gift is greater than the donor’s basis, which basis is used for the donee?
The donee will assume the donor’s basis and holding period
How is the gift tax adjustment applied?
FMV - basis / FMV - Gift Tax Exclusion = Gift tax ratio
Gift tax Paid * Gift Tax Ratio = X
Basis = X + Original Basis
Who controls fiscal policy?
Congress
Who controls monetary policy
Federal Reserve
What is the cooling off period for a viatical settlement provider
15 days
What is the Sharpe Ratio
Sp = Return of port - Risk free rate / Standard Deviation
Sp = Rp - Rf / Op
Appropriate when r2 is < .7
What is the Treynor Ratio
Measures risk-adjusted performance of manager
Tp = Return of Port - Risk Free Rate / Beta
Tp - Rp - Rf / Bp
Appropriate when r2 is > .7
What is the CAPM formula?
Expected Return = Risk Free + (market return - risk free) Beta
Ri = Rf + (Rm - Rf)Bi
What is Jensen Performance Index (Alpha)
Measure used to evaluate portfolio managers r2 must be above .70
Alpha = Port Return - [risk free + (market return - risk free)Beta]
ap = Rp - [Rf+(Rm - Rf)Bp]
What is the SE tax rate and the components?
15.3% with 12.4% SS and 2.9% Medicare
What is the Net earnings from SE multiplier?
.9235
Self employed earnings above how much are subject to only 2.9% medicare tax?
$160,200
Who funds a SEP plan?
100% employer funded
When is a retirement plan considered top heavy?
When more than 60% of plan benefits or contributions is key employees
When must the accrual method of accounting be used?
When inventory is involved of the average gross receipts over the last 3 years is greater than 29MM
What is the maximum amount that can be expensed in section 179?
1,160,000
A Simple Trust has which 4 characteristics
Required to distribute all accounting income to beneficiaries in year earned
May not have charitable beneficiary
Cannot distribute principal during the tax year
Have a personal exemption of 300
A complex trust has which 4 characteristics
Are not required to make distributions
May have charitable beneficiary
May distribute principal during the tax year
Personal exemption of $100
What are the 4 types of trust?
Testamentary
Living
Revocable
Irrevocable
If you make a revocable trust irrevocable within how many years it will be brought back into a gross estate
3 years
Who receives the legal title of the property placed in a trust?
Trustee
In a cross purchase agreement the number of policies needed is equal to
n x (n-1)
In an entity purchase plan the number of policies needed is equal to?
Number of partners and/or shareholders
Explain Duration in Bonds
weighted average of the present value of future cash flows of a bond
always stated in years
always shorter than maturity
Which yield is used to make investment decisions?
The lower of YTM and YTC which is the YTW
What is the formula for convexity change in bond prices
🔺P / P = -D[🔺y/1+y]
What kind of trust is a 2503(b)
A Section 2503(b) trust, also known as a Qualifying Minor’s Trust or Mandatory Income Trust, is an irrevocable trust established for the benefit of a minor child or other beneficiaries. It is named after Section 2503(b) of the Internal Revenue Code, which allows an exception to the general rule that only gifts of present interests qualify for the annual gift tax exclusion. Here are the key aspects of a Section 2503(b) trust:
Income distribution: The trust must distribute all income earned at least once a year to the beneficiary, but there is no requirement to distribute the principal
1
.
Irrevocable: Once the trust is formed, a beneficiary named, and assets transferred to the trust, it cannot be altered or ended
1
.
Tax rules: For federal gift tax purposes, transfers to a Section 2503(b) trust are treated as present interest gifts that qualify for the annual gift tax exclusion
1
.
Income tax savings: There may be substantial income tax savings if the beneficiary is not subject to the kiddie tax
1
.
Estate tax savings: The assets in the trust, including any appreciation in their value, are not included in the grantor’s estate
1
.
Costs: Establishing and maintaining a Section 2503(b) trust involves costs, such as hiring an experienced estate planning attorney and potentially a professional trustee
What are the characteristics of a QPRT
Irrevocable trust
Qualified personal residence trust
Holds a persons residence
Allowing them to live rent free for a specified time
At the end of term home will pass gift tax free to trust beneficiaries
What are the characteristics of a 2056A QDOT
Qualified domestic trust
Allows marital deduction for property placed in a special trust for the benefit of non citizen spouse
The trustee tax form is what?
Form 1041
Form 1041 NR (trustee of foreign trust)
What is not considered a capital asset? ACID
Accounts or notes receivable acquired in ordinary business
Copyrights
Inventory or property held for sale
Depreciable property used in business
What kind of property is 1245 property
Personal business property such as furniture and computers
What kind of property is 1250 property?
Realty property such as commercial buildings
How many days does a taxpayer have to identify a replacement property in a 1031 exchange?
45 days
How many days do you have to complete an exchange in 1031 transfer?
180 days
What is the mandatory federal holding in a traditional rollover?
20%
A non spouse beneficiary must distribute an inherited IRA within how many years?
10 years
A minor may inherit an IRA under what age?
21
Qualified plans do not cover which 3 early distributions.
Education expense
Health Insurance
Home buying
After the age of 55 if you separate from service how does this affect the withdrawal from retirement plans?
Qualified plans there is no penalty
Traditional Roth, SEP, Simple IRA there is no exception
What are the basics of a GRAT Trust?
Grantor Retained Annuity Trust
-Irrevocable trust
-Minimizes Tax on large financial gifts
-Grantor puts assets in a trust for a set period and the trust pays an annuity
-Interest is taken on the value of the assets when trust is created any growth over the valuation is tax free
- Reduces the size of grantors estate
- When you establish a GRAT, you’re effectively making a gift to the beneficiaries. The value of this gift is calculated based on the present value of the remainder interest
What is the housing cost ratio?
PITI / Gross Monthly Income
Pass <= 28%
What is the total debt ratio?
PITI + Monthly Consumer Debt / Gross Monthly Income
Pass <= 36%
What is the consumer debt ratio?
Monthly Consumer Debt / Monthly Net Household Income
Pass <= 20%
Review the steps to calculate a multi-stage dividend discount model.
Seamus purchased 350 shares of KAN which currently pays $225 of annual dividends. Dividends on the KAN shares are expected to grow 1.78% annually for the next three years. After three years, KAN dividends are projected to grow at 0.92%. Seamus has a required rate of return of 7.12%. Currently, KAN is priced at $10.45. Calculate the intrinsic value of KAN stock and determine whether it is undervalued or overvalued in relation to the market price.
$10.29, overvalued
$11.03, undervalued
$9.03, overvalued
$10.72, undervaluedYou correctly checked this.
STEP 1: Calculate the dividend per share:
$225 ÷ 350 = $0.6429
STEP 2: Calculate the end-of-year dividend for three-years at the 1st dividend growth rate:
Year 1 0.6429 x 1.0178 0.6543
Year 2 0.6543 x 1.0178 0.6660
Year 3 0.6660 x 1.0178 0.6778
STEP 3: Calculate the stock valuation at Year 3 based on the new, constant dividend rate:
V = 0.6778 (1.0092)0.0712 − 0.0092
$11.03 = 0.68400.062
STEP 4: Solve for the Net Present Value (NPV):
Required Rate 7.12 I/YR
Zero Entry 0 CF0
D1 0.6543 CF1
D2 0.6660 CF2
(D3 0.6778) + (V 11.03) = 11.7078 CF3
SHIFT, NPV 10.7162 or, $10.72
What is the formula to calculate a margin call?
1 - IM / 1 - MM x Stock price
Calculate for commission if need be
Commission / Shares purchased = Commission per share
Explain NUA (Net Unrealized Appreciation) Tax regulations
Net Unrealized Appreciation is the difference between the original cost basis (the price initially paid) of an employer’s stock and its current market value, when that stock is held in a tax-deferred account like a 401(k).
NUA becomes relevant when you distribute employer stock from your retirement plan, such as a 401(k). Instead of rolling over the stock into an IRA, you transfer it into a taxable account.
When you transfer the stock, you pay ordinary income tax only on the cost basis, not on the stock’s current market value. The NUA, or the appreciation of the stock, isn’t taxed until you sell the stock. And when you do sell, it’s taxed at long-term capital gains rates, which are generally lower than ordinary income tax rates.
For NUA to apply, the distribution generally needs to be a lump-sum distribution, meaning the entire balance of your account must be distributed in one tax year, and it usually must occur in the year you leave your employer.
What does actual cash value mean?
This is the replacement cost at time of loss
- depreciation
What is the formula for bond price sensitivity?
🔺P/P = -D [🔺y/1+y]
D= duration
🔺y = change in rates
y = yield
How much may active real estate participants deduct?
25k
What is the phase-out range for active real estate participants?
100-150k MAGI
What is the max someone can borrow in a year from a qualified plan?
The lessor of 50k or 1/2 the account
Key features of a CLUT
- A type of irrevocable trust
- Provides income to a charity for a set period
- Remaining assets go to non-charitable beneficiaries
- Serves as an inflation hedge
- Addition of assets permitted at anytime
Used when GST is a concern
Key features of a Charitable Lead Annuity Trust (CLAT)
-A type of irrevocable trust
-Provides a fixed annuity to a charity for a set period
-Remaining assets then pass to non-charitable beneficiaries
-Used when interest rates are lower
Pooled Income Fund (PIF)
A type of charitable trust
Combines contributions from multiple donors
Provides income to donors, with remainder to charity
A Pooled Income Fund is a type of charitable trust that combines the contributions of multiple donors into a single investment fund. Here’s a summary of how a Pooled Income Fund works:
Charitable trust: It is a trust established and maintained by a qualified nonprofit organization, allowing donors to make tax-deductible gifts and receive income for life
Pooled contributions: Donors’ assets are pooled together and invested as a mutual fund, with each donor receiving a proportionate share of the fund’s income
Income distribution: The fund’s income is distributed to the donor and/or named beneficiaries during their lifetimes, and upon the last beneficiary’s death, the remaining assets are transferred to the designated charity
Tax benefits: Donors can receive an immediate partial tax deduction, avoid capital gains tax on appreciated assets, and reduce their estate taxes and probate costs
What form is used for estate tax returns?
Form 706
Charitable Remainder Annuity Trust (CRAT)
-A type of irrevocable trust
-Provides fixed annual payments to the donor
-Remainder goes to charity
-Not to exceed 20 years of life
-Larger transfer to the charity and a greater reduction on estate tax
Charitable Remainder Unitrust (CRUT)
-A form of irrevocable trust
-Provides variable annual payments to the donor
-Remainder goes to charity
-Not to exceed 20 years
-Income payments 5-50% trust value
-Highly appreciated asset and is seeking diversification without triggering capital gains
Non-Qualified Deferred Compensation (NQDC)
Designed for top executives that exceed limits available through qualified plans
A type of employer-sponsored deferred compensation
Not subject to ERISA guidelines
Offers tax deferral benefits
Unlike qualified plans, there is no limit on the amount of income that can be deferred under an NQDC plan.
In a like kind exchange (1031) the recognized gain is?
The lessor of:
realized gain
net boot received
For EFC in college planning student assets are included at what percent? and student income is included at what percent?
20%/50%
What is the Last 3 Years Rule in a 457 Plan?
- A special catch-up contribution rule for employees nearing retirement.
- Applicable in the three years prior to the normal retirement age
- Allows doubling the standard contribution limit.
- Not available if using the age 50+ catch-up contribution.
How is SE tax calculated?
.9235 X SE Income = Y
Y (.153) = SE Tax
What is rule 204-3?
Rule 204-3 under the Investment Advisers Act of 1940, commonly referred to as the “brochure rule,” generally requires every SEC Registered Investment Adviser to deliver to each prospective advisory client a written disclosure statement, or “brochure”, describing the adviser’s business practices and educational and business background.
To comply with the brochure rule, an investment adviser may deliver Form ADV, Part 2B.
Banks are commonly referred to as?
Deposit type institutions
What is an express contract?
A contract is express if it arises from the language, either oral or written, of the parties. Since both parties in the transaction verbally agreed to the sale price, Susanna and Eliza entered an express contract.
What is the Disabled Access Credit?
Qualification Criteria for Businesses:
- Earned $1 million or less in previous tax year, OR
- Had 30 or fewer full-time employees during the previous tax year.
Credit Limits:
- 50% of eligible expenditures.
- Applies to amounts over $250, up to a maximum expense of $10,250.
- Maximum available credit: $5,000 per year.
Eligible Expenditures Include:
- Removing barriers,
- Providing interpreters or other methods of making services accessible,
- Specific equipment purchases or modifications.
What is the blockage rule in gifting?
The blockage rule attempts to value gifts of large blocks of stock based on the price the property would bring if the stock were liquidated in a reasonable time in some way outside the usual marketing channels.
Explain the differences between an UTMA and UGMA account
UGMA - only holds financial assets such as stocks and bonds
UTMA - flexibility in terms of assets that can be held
Both UGMA and UTMA accounts are subject to the same tax treatment. The first portion of unearned income is tax-free, the next part is taxed at the child’s tax rate, and income above that threshold is taxed at the guardian’s rate. This is known as the “kiddie tax.”
UGMA- Child gains control at age 18
UTMA - Age termination at 21 or 25
17k gift tax applies / Counted as student asset
What is a SCIN
A SCIN is a financial instrument used in estate planning where a seller extends a loan to a buyer in the form of a promissory note with installments. The unique feature of a SCIN is that if the seller (lender) dies before all payments are made, the remaining debt is automatically cancelled. This tool is often used to transfer wealth to the next generation, as any unpaid portion of the asset’s value is forgiven at the seller’s death, potentially avoiding estate taxes. SCINs typically carry higher interest rates to compensate for the risk of early cancellation. They require careful structuring to comply with tax regulations and reflect the seller’s life expectancy.
What are the maximum annual charitable deductions?
Public/ Private
Cash 60%/30%
LTCG FMV 30%/20%
LTCG Basis 50%/30%
Ordinary Income 50%/ 30%
Explain Use related and Use unrelated and how that affects taxes on donatations
Use related allows you to tax the highest tax dedication
Use unrelated uses the lessor of the Basis or FMV as the deduction amount
How much is the social security tax and what is the income limit and tax amount for unlimited earned income?
7.65% SS tax
$160,200 income limit for SS tax
1.45% taxed on unlimited income
SS retirement income benefits requires how many earned credits?
- Earned at 4 credits per year / 1 per quarter.
1/4 credit earned for each $1,640 of earned income
What are the 3 areas of SS Benefits
Retirement - for works 62 and older with 40 credits
Disability Benefits - For adults 18 or older who cant work due to physical or mentally disability that is expected to last 12 months or result in death.
Survivors Benefits - For family members of deceased workers who qualified for social security
What are the Social Security tax limits
MFJ Over 32K 50%
Over 44k 85%
Single Over 25K 50%
Over 34k 85%
MFS 85%
In homeowners insurance identify what coverage A,B,C,D are for and what the typical amounts are.
A - Dwelling
B - Structures (typically 10% of A)
C - Personal Property (typically 50% of A)
D - Loss of use (typically 20% of A)
What is the primary purpose of each bankruptcy?
Chapter 7 - Liquidation (individuals and businesses)
Chapter 13 - Repayment (individuals)
Chapter 11 - Reorganization (Businesses)
What is the RMD penalty amount?
25%
What is the excess method contribution rate?
Under the excess method, the maximum excess contribution rate for compensation above the compensation threshold is the lesser of:
2x the base contribution rate or
the base contribution rate plus 5.7%.
Section 179 limitation (upper bound)
2,890,000
What is the age requirement and limit for a QCD?
70 1/2 and 100k
The term “QCD” does not directly refer to a specific concept in the context of retirement plans or tax law. However, based on the search results, it is possible that you are referring to a Qualified Charitable Distribution (QCD), which is a type of distribution from an Individual Retirement Account (IRA) that can be made directly to a qualified charity. Here’s a summary of a Qualified Charitable Distribution:
Purpose: A QCD is a distribution from an IRA that is paid directly to a qualified charity, allowing the IRA owner to satisfy their required minimum distribution (RMD) and potentially reduce their taxable income
Eligibility: To qualify for a QCD, the IRA owner must be at least 70½ years old, and the distribution must be made directly from the IRA to the qualified charity
Tax benefits: A QCD is not included in the IRA owner’s taxable income, which can help reduce their tax liability, especially if they do not itemize deductions
Limitations: The maximum annual QCD amount is $100,000 per person, and the distribution must be made directly from the IRA to the charity
Qualified charities: The charity must be a 501(c)(3) organization, and donor-advised funds, private foundations, and supporting organizations are not eligible recipients of QCDs
What is a QDRO?
Judgment, decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights to an alternate payee
CFP Board’s Code of Ethics and Standards of Conduct reflects the commitment that all CFP professionals ___________ and __________
make to high standards of competency and ethics
Financial Planning is a ____________ that helps __________________
Collaborative process
Maximize a clients potential for meeting life goals through financial advice
During an engagement of financial ADVICE what information must be provided to the client?
Services and Products - Orally/Writing (initially)
How the client pays - Orally/Writing (initially)
How you and others are compensated - Orally/Writing (initially)
Public discipline and bankruptcy - Orally/Writing (within 90 days)
Material conflicts of interest - Orally/Writing (initially)
Written Privacy Policies - Writing (initially)
Referral compensation agreement - - Orally/Writing (initially)
Other Material Information - - Orally/Writing (initially)
“See How People Can Determine Proper Regulations On Omissions.”
See: Services and Products
How: How the client pays
Harry: How you and others are compensated
Publically: Public discipline and bankruptcy
Conflicts: Material conflicts of interest
With: Written Privacy Policies
Referring: Referral compensation agreement
Information: Other Material Information
What is the tax formula?
Income (from all sources)
➖exclusions
Gross Income
➖Deductions FOR AGI
AGI
➖ Deductions FROM AGI (greater of standard deductions, itemized, or qualified business income deduction)
Taxable Income
✖️ Tax rate
Gross Tax
➖ Tax Credit
Final Tax Due
What are the above the line deductions?
Alimony
HSA
IRA
SEP/SIMPLE/Qualified
SE Tax
SE Health Insurance
What are the below the line deductions
Itemized or Standard
Unreimbursed Medical Expenses above 7.5%
SALT Tax Limit 10k
Interest Paid
Gifts to charity (remember limits)
Casualty and Theft Losses (must be a federal disaster, Lessor of FMV or basis 10% AGI threshold)
🧙🏽 M edical expenses
S A L T
G ifts
I nterest
C asulty and loss
What two situations must occur to use the AVD?
Gross estate value reduced
Reduced estate tax + GSTT
Interest from U.S. Treasuries is subject to federal income tax but not state income tax in the year it is earned.
REMEMBER
What is the maximum qualified loan amount and term?
50k/5 years
Group term life insurance premiums up to what amount are tax-exempt for the employee?
50k
Which retirement accounts allow loans?
401(k) and 403(b)
Traditional and ROTH IRA’s do not allow loans only early withdrawals within certain circumstances
Gift loans of ________ or less are not subject to gift tax unless the donee uses the proceeds to purchase income producing property
10k
If a loan is less than what amount and has no net investment income is it not considered a gift?
100K
For taxpayers who are not active participants (and whose spouses are not active participants) in a qualified plan, SEP, SARSEP, SIMPLE, or Section 403(b) plan, contributions to a traditional IRA are
Fully Deductible
What is the max individuals may deduct in rental real estate losses?
up to 25k if
1. active participant
2. ownership of 10% or more
phaseout range 100k-150k 50% of excess AGI over 100k
In a defined benefit pension plan, the maximum annual benefit is calculated how?
Lessor of 265k or the compensation averaged over the three highest consecutive earning years
Explain the non discrimination rules in retirement planning
Ratio Test: To pass, the percentage of benefiting NHCEs must be at least 70% of the percentage of benefiting HCEs.
Section 1202 stock must be held for how many years to be excluded from taxable income
5 years
What are the two exceptions for the AVD?
Wasting assets such as patents, annuities and installment notes are valued on date of death
If asset is sold before AVD the date the asset is sold is used
Medicare does not pay for what?
Long term custodial care
Medicare A does provide limited coverage for what?
Skilled nursing care following hospitalization
What is the AOTC
2000 of education expenses
25% of the next 2000 education expenses
Per student
What are the systematic market risk? PRIME
Purchase Power Risk
Reinvestment Risk
Interest Rate Risk
Market Risk
Exchange Rate risk
What is the interpolated terminal reserve?
FMV of a life insurance policy
Name the following tax forms purpose:
1099-R
SSA 1099
1099-DIV
1099-INT
1099-NEC
Retirement Income
Social security and retirement benefits
Investment Dividends
Interest Income
Non employee Compensations
Name the following tax forms purpose:
Schedule B
Schedule C
Schedule D
Schedule SE
Form 4868
Form 1040ES
Interest and Dividend Income
Profit and Loss from Business
Capital Gains
Self employment tax
Extension to file
Estimated Tax for individuals
What is the maximum annual additions limit for profit sharing plans for employees?
The lessor of 100% of the participants compensation or 66k
What are the elective deferral aggregation rules for 401(k) plans?
if an individual contributes to multiple 401(k) plans, the total contribution to all plans must not exceed these limits
Are catch-up contributions included in the annual additions limit?
No
Are target benefit DC plan needs an actuary how many years?
1 year
What is 529 Forward Funding and how does it work?
Definition: 529 Forward Funding refers to the strategy of making a large, lump-sum contribution to a 529 college savings plan upfront, often utilizing the gift tax exclusion.
Gift Tax Exclusion: As of 2023, the IRS allows a special election for 529 plans where individuals can contribute up to five years’ worth of gifts in one year without triggering gift taxes. This means an individual can contribute up to $85,000 (5 x $17,000 annual exclusion for 2023) and a married couple can contribute up to $170,000.
If the gift tax exclusion increases the ADDITIONAL amount may be added to the super fund
What is an HMO Policy?
HMO stands for Health Maintenance Organization.
It is a type of health insurance plan that provides healthcare services through a network of providers.
Members must choose a primary care physician (PCP) who coordinates all care and makes referrals to specialists within the HMO network.
Emphasizes preventive care and wellness.
Typically offers lower premiums and out-of-pocket costs but less flexibility in choosing healthcare providers compared to other plans like PPOs.
Out-of-network care is usually not covered except in emergencies.
To be eligible for a viatical settlement a physician must certify the insured is expected to die within?
24 months
Qualifing widower can be filed in what years after death?
Years 1 and 2
What is the combined failure to file and failure to pay penalty?
5%
Which plan are subject to the 50/40 rule?
DB Pension plans
The 50/40 rule states the plan must benefit the lessor of 50 employees or 40% of the employees.
What are the special provisions for a 403(b) plan and 457(b)
403(b) special catch up 3k age 50+ with 15 years of service (33k) total
457(b) plan 3K catch-up can not be combined with a 7500 catch up
Are 457(b) plans aggregated with other tax advantage plans?
No
If there is a gift and the donor paid gift taxes, what is the gift tax adjustment to the donee’s basis?
Appreciation (FMV - Basis)
____________________________ = X
Either: FMV or FMV - A.E.
X (taxes paid) = y
Basis + y = New Basis
Identify the unrelated and related skip person in GSTT
Related: Two or more generations below donor
Unrelated: 37 1/2 years younger than the donor
Which GST tax is tax inclusive and tax exclusive?
Inclusive - Tax Distribution/Tax termination
Exclusive - Direct Skip
Under the excess method for integration with Social Security, what is the maximum excess contribution rate to the plan
Under the excess method, the maximum excess contribution rate for compensation above the compensation threshold is the lesser of:
2x the base contribution rate or
the base contribution rate plus 5.7%.
Section 179 expenses can be claimed up to the ____________________ amount.
Net Income Amount (Includes a spouses W2 Income)
2 methods of 179 Net income amount with carryover
179 with the remain amount being depreciated
A SIMPLE IRA has a penalty of _______ if withdrawals are taken within __________ years.
25% / 2 years
Are 457 plans considered an active participant for employer retirement?
No
What is the estate tax formula G.A.T.
Gross Estate
➖ deductions
Adjusted Gross Estate
➖Charitable giving
➖marital deduction
Taxable Estate
Explain ISO’s
No tax when option is granted
No tax due at exercise
Tax due when sold
Subject to AMT (basis is exercise price)
Bargain element not subject to taxation
Must have qualifying disposition to get Capital Gains tax
Two years from grant AND 1 year from exercise
Explain NQSO
No tax when option is granted
In year of exercise Bargain Element (FMV - Strike) is taxed as compensation
Employer claims deductions on compensation
At sale the difference between sale price and basis is taxed at capital gains
Explain the AMT
Sets the tax floor for every tax payer
You MUST pay this amount of tax, usually the regular tax liability is larger than the AMT
If AMT amount is greater you can:
Accelerate income into the AMT year
Defer tax deductions until a regular tax year (why take a deduction in an AMT year when your already at the least amount you can pay in taxes)
At death, annuities receive no step up
To be considered an active participant in real estate what are the two requirements?
10%+ ownership
Involved in property management
Up to 25k deductible
100k-150k Phaseout
What is the max amount that can be taxed in social security
85%
(tax exempt income counts in the provisional income calculation)
If married filing separate, there are no income thresholds of 50% and 85% you are taxed at 85% no matter what.
A QTIP qualifies the grantor to receive which of the following?
Marital Deduction
Surviving spouse must include the property in their estate
What is Terminal Interest Property?
Property that will end at a certain time (annuities ex.)
This does not qualify for the marital deduction unless a QTIP is used
what is your personal liability account to the fair credit billing act?
The FCBA is particularly nifty when it comes to unauthorized charges. If your credit card is lost or stolen and used to make unauthorized charges, your liability is capped at $50 per card. In many cases, credit card issuers even waive this fee.
explain the LLC
up to 2k per return (20% of 10K worth of student cost)
Unlimited years
Available Per return
Explain AOTC
Available only for first 4 years of college
up to 2k in tuition and 25% of the next 2k for a max of 2,500 in benefits
available per eligible student
Must be enrolled at least half time
Tuition and fees only, no room and board`
How is NII tax calculated?
The lessor of NII or amount over threshold
3.8% tax
Living WIlls
A living will is a legal document that outlines an individual’s end-of-life medical wishes, specifically detailing how they wish to be treated if they are unable to make decisions about emergency treatment. In a living will, individuals can specify which medical treatments or care they would want, which ones they would want to avoid, and under which conditions each choice applies. This document is distinct from a traditional will, which focuses on estate matters such as property distribution and financial assets. A living will is an essential component of advance care planning, allowing individuals to communicate their healthcare preferences in the event they are unable to do so themselves. It is often accompanied by other advance directives like a durable power of attorney for healthcare, which designates a person (healthcare proxy) to make medical decisions on the individual’s behalf
What is the self employment retirement contribution max amount for owners?
18.59%
