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S 66 > Ch. 10 > Flashcards

Ch. 10 Flashcards

1
Q

The tax treatment of a limited liability company (LLC) is similar to the treatment of what other entity?

A

A Subchapter S Corporation

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2
Q

What are the different terms used to identify the individual sets up a trust?

A

Creator, maker, grantor, donor, trustor, settlor

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3
Q

Define vesting.

A

The right an employee gradually acquired by length of service at a company to receive employer contributed benefits

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4
Q

If a client wins $1 million, what should an agent or an IAR do?

A

Update the clients information that is on file

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5
Q

What retirement plans are available to the self employed?

A

Keogh plans and SEPs

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6
Q

If a mutual funds dividends are reinvested, what impact will this have in the cost basis of a clients shares?

A

If reinvested dividends are used to acquire additional shares, the clients cost basis will increase

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7
Q

When selling a primary residence, how much of the gain (if any) is excluded from taxes?

A

$250,000 for single filers or $500,000 for joint filers

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8
Q

___________ Partners are the primary contributors of capital to a limited partnership.

A

Limited

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9
Q

T/F: To avoid a late withdrawal penalty, IRAs have a required minimum distribution (RMD) provision.

A

T

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10
Q

T/F: Employees are fully vested in their own contributions.

A

T

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11
Q

Define a sole proprietorship.

A

A business that is owned by one person who is responsible for all management decisions and entitled to all profits.

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12
Q

What are some of the investments that are not suitable for IRA contributions?

A

Collectibles, insurance, and metals (except US gold and silver coins)

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13
Q

T/F: 529 plans allow for a five year front end contribution of $80,000 which avoids gift tax.

A

T; ($16,000 x 5 years)

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14
Q

What would an IAR consider when performing a capital needs assessment for a client?

A

The clients future earnings potential, expenses, and life expectancy, but also inflation expectations

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15
Q

T/F: the income of a C Corporation is subject to double taxation.

A

T; the corporation pays tax on its earnings, with any distributions being taxed to the owners (shareholders)

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16
Q

How is basis determined for the recipient of gifted securities?

A

Basis will be the donors cost or market value, whichever is lower

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17
Q

In calculating an IAs net worth, what assets are NOT included?

A

Homes, home furnishings, automobiles, goodwill, and pre paid expenses are not included

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18
Q

What factors are necessary to determine a persons tax status?

A

Age, marriage status or country of residence, earned income, and unearned income

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19
Q

IRA rollovers must be completed within ____ days.

A

60

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20
Q

What is a Simplified Employee Pension (SEP) Plan?

A

An employer sponsored IRA for the self employed and it’s employees

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21
Q

Only one IRA rollover is allowed per rolling _____ months.

A

12

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22
Q

What business structure does not provide for flow through of tax treatment?

A

C corporations

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23
Q

T/F: only one person must provide information to open a joint account.

A

False. Each owner must provide information to open a joint account.

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24
Q

List, some of the common financial goals.

A

Income, growth, preservation of capital, liquidity, tax relief, and speculation

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25
Q

What happens to a general partnership, when a general partner dies?

A

Typically, general partnerships dissolve upon the death of a general partner.

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26
Q

What document is filed with the state of legal domicile to create a partnership?

A

Certificate of limited partnership

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27
Q

The earnings generated in a revocable trust will be taxed to the ____________.

A

Grantor

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28
Q

For a qualified retirement plan, what document details, the plans needs, goals, time horizon, and investment philosophy?

A

The investment policy statement

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29
Q

When is an inter vivos trust established?

A

During the donors lifetime

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30
Q

Municipal bond interest is exempt from what tax?

A

Federal tax

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31
Q

Who is eligible to contribute to qualified annuity?

A

Public school employees 403b and certain nonprofit organization employees 501 C3

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32
Q

If not needed for a child education, may the funds and a 529 plan be transferred to a relatives 529 plan?

A

Yes

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33
Q

A gift of securities between spouses is subject to gift tax if it exceeds what dollar amount?

A

There is no limit on gift size between spouses. The gift tax exclusion of $16,000 per year does not apply to spouses

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34
Q

Which plans impose income limitations on the contributors, 529 plans or Coverdell ESAs?

A

The Coverdell ESA

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35
Q

What are the benefits of setting up an irrevocable trust?

A

It will reduce estate taxes and also avoid probate.

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36
Q

Identify the acronym: RMD

A

Required minimum distribution

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37
Q

A per capita trust would pass on the same ________ of the trust to each member of the next generation.

A

Percentage

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38
Q

May an employee of a corporation who contributes to a corporate pension plan also contribute to a Keogh plan?

A

Yes, provided the Keogh contribution is solely based upon the employees self employment income.

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39
Q

T/F: An order ticket includes the price of execution.

A

F; the price of execution is found in the customer confirmation

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40
Q

A SIMPLE 401k may be established by a ______________.

A

Small business

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41
Q

T/F: Ease of ownership transfer is an advantage to stock ownership as opposed to ownership in a partnership.

A

T; partnership interest are typically illiquid, whereas stock is easy to buy and sell.

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42
Q

Under the provisions of UGMA/UTMA, when does a minor obtain ownership of the assets in the account?

A

A minor is the owner at the time a gift is made, but it’s not gain control of the assets until he reaches legal age

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43
Q

An irrevocable trust will eliminate ______ and will reduce _______ tax liability.

A

Probate ; estate

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44
Q

How are S corporations treated for tax purposes?

A

S corporations have the same flow through treatment as partnerships (they are not taxable entities)

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45
Q

How much may be contributed to 529 plan and avoid gift tax?

A

I don’t wanna give up to $16,000 per year and avoid the gift tax

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46
Q

T/off: all corporate officers may affect transactions for the corporation.

A

False, only those named in the corporate resolution

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47
Q

When investing for an estate, the most suitable investments are normally ________-term. 

A

Short

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48
Q

Main individual with a Keogh plan fund an IRA?

A

Yes, but since the Keogh is a qualified plan, the IRA contributions may not be tax deductible

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49
Q

Identify the acronym: AGI

A

Adjusted gross income

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50
Q

T/off: the amount left on a mortgage is found on a customers cash flow statement.

A

False that would be a liability on the balance sheet

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51
Q

And investor buys a stock for $100 and receives a $10 dividend. If she sells for $95, what is the capital gain or loss?

A

Her loss is five dollars. The dividend is taxed separately and is not treated as a capital event

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52
Q

T/off: employer contributions in a money purchase plan our mandatory

A

True

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53
Q

How are withdrawals from a Roth IRA treated for tax purposes?

A

Withdrawals are tax free, if the account is open for at least five years, and is not considered an early withdrawal

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54
Q

A contribution of $________ can be made to a Spousal IRA for a non working spouse.

A

$6000

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55
Q

A branching trust would pass on a(n) ________ of the trust to the next generation.

A

Equal share

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56
Q

To become a limited partner, the __________ ________’s signature is required on the Subscription Agreement.

A

General partners

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57
Q

What is ERISA?

A

Employee retirement income security act

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58
Q

___________ retirement plans, need not meet IRS requirements for employee coverage, contribution limits, and vesting.

A

Nonqualified

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59
Q

S corporations are not subject to _______ taxation.

A

Double

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60
Q

Women’s individual withdraw money from an IRA without penalty?

A

After he turns 59 1/2

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61
Q

T/F: required minimum distributions apply to Roth IRA accounts

A

False. Required minimum distributions apply to traditional IRA accounts not Roth IRA accounts.

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62
Q

A limited partnership could be formed by a minimum of how many individuals?

A

2(1 general partner, and one limited partner)

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63
Q

What are some of the acceptable investments for an IRA contribution?

A

Stocks, bonds, mutual funds, and CDs

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64
Q

What does the partnership agreement define?

A

The rights, liabilities, and obligations of each partner

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65
Q

ERISA gave the US government jurisdiction over _______________ plans. 

A

Private pension plans

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66
Q

What are the general characteristics of a joint tenants with rights of survivorship account?

A

It has multiple owners, and each has trading rights. If one owner dies, her account value passes to the other owners.

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67
Q

In a 529 plan, what happens if the funds or withdrawn, but not used for qualified education expenses?

A

The earnings would be subject to ordinary income tax plus a 10% penalty

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68
Q

T/F: SEP’s require employees to become immediately vested in the full amount contributed

A

True

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69
Q

Regarding clients, list, some of the non-financial considerations and IAR must consider?

A

Age, occupation, time, horizon, investment, experience, and social values

70
Q

What is the tax rate called that applies the last dollar amount a person earns?

A

Marginal tax rate

71
Q

Reinvesting dividends in a mutual fund creates a ________ event.

A

Taxable

72
Q

In a qualified annuity, how is the payout taxed?

A

The entire payout is taxes, ordinary income, since the annuity was funded with pretax dollars

73
Q

T/off: spouses may give an unlimited amount to one another, and not be subject to the gift tax

A

True

74
Q

T/S: required minimum distributions apply to SEP IRAs.

A

True. Required minimum distributions apply to IRA SEP plans.

75
Q

Which education plan has a contribution limit of $2000 per year for the benefit of a child under the age of 18?

A

Coverdell education savings plan

76
Q

Will estate tax apply when assets are left to a spouse?

A

Generally, there is no estate tax between spouses. However, if the spouse is a non-US person, the exclusion is denied.

77
Q

T/F: when, investing in a 401(k) plan, all forms of taxes are deferred on the money contributed

A

False. Although, income taxes are deferred, unemployment and Medicare taxes must still be paid in the current year.

78
Q

When receiving securities as a gift, how is the recipients cost basis calculated

A

The cost basis is the lower of the donors, original basis, or the market value at the time of the gift

79
Q

_____Plans are college savings plans with high contribution limits up by state sponsors

A

529

80
Q

If Bruce intense to buy an IPO in his wife’s individual account, what’s the regulatory issue?

A

Bruce must obtain sign third-party authorization from his wife in order to complete this trade

81
Q

What is the formula for calculating an individuals, personal discretionary income?

A

Income - expenses =discretionary income

82
Q

How is interest on municipal bonds treated for tax purposes?

A

Federal tax exempt, but may be subject to state and local tax

83
Q

When a limited partnerships, assets are sold for capital gain, the game is taxed when________, not when __________.

A

Realized; distributed

84
Q

T/F: stockholders able to vote for a Director, but not an officer

A

True

85
Q

Why is the clients profession relevant when determining suitability?

A

It may indicate the clients level of sophistication, and the potential need for liquidity

86
Q

Which annuity is funded with after tax dollars, qualified or nonqualified?

A

Nonqualified

87
Q

There is a____percent penalty for early withdrawal from an IRA

A

10

88
Q

What is the primary purpose of forming a Family limited partnership or FLP?

A

To minimize the state tax and gift, tax liabilities

89
Q

The maximum number of shareholders in an S corporation is ______

A

100

90
Q

Identify the acronym: IRA

A

Individual retirement account

91
Q

With some important considerations when determining the suitability of recommendations, made to customers

A

Investment objectives, financial situation, risk tolerance, tax status

92
Q

What are the contents of an estate?

A

The total assets and liabilities of a decedent

93
Q

In a limited partnership, which partner has unlimited personal liability in which has limited liability?

A

General partners have unlimited liability, while the limited partners have limited liability

94
Q

A __________ is required to open an account for a partnership

A

Partnership agreement

95
Q

What is required to receive the tax benefits of a family limited partnership?

A

A legitimate business purposes required, if created solely for tax benefits, the IRS me disallow the benefits

96
Q

If an IAR’s client has just died without a will, from whom may she accept instructions?

A

From the interstate administrator

97
Q

T/F: When formulating a financial plan, it is always important to consider the clients liquidity needs.

A

T

98
Q

If a client is reluctant to disclose information, what must an IAR do?

A

Use the information given and create a plan based on that information. An IAR may not make assumptions.

99
Q

Identify the acronym: SEP

A

Simplified employee pension plan

100
Q

IRA contributions must be made in what form?

A

Cash

101
Q

Who establishes a testamentary trust?

A

The estate of the deceased

102
Q

What amount may be gifted without being subject to the gift tax?

A

A gift of 16,000 per recipient, per year is permitted

103
Q

What are the differences between a simple and a complex trust?

A

Hey simple, trust must distribute earnings, but not principal. Complex trusts me retain earnings or distribute principal.

104
Q

T/S: a gift made to an UGMA/UTMA account is the preferred method of funding a child’s college education

A

False. The assets in an UGG/UTMA account are owned by the child, which may reduce the eligibility for student aid.

105
Q

What is the difference in owners liability, when forming an LLC as opposed to a sole proprietorship?

A

The owners of an LLC, have limited liability, while the other owner of a sole proprietorship has unlimited personal liability

106
Q

How much may be contributed to a Coverdell each year?

A

And after tax contribution of 2000 is allowed per year

107
Q

When securities are gifted, the recipients holding period will be ___________.

A

The same as the donors

108
Q

Which annuity allows for pretax, contribution, qualified, or nonqualified?

A

Qualified

109
Q

What is the recipients cost basis for a gift of collectible?

A

It’s generally the donors cost

110
Q

What business structure provides flow through tax treatment and has P&L reported on the owners personal tax return?

A

An S corporation

111
Q

What is the balance sheet equation?

A

Assets =liabilities + shareholders equity

112
Q

In a trust, all actions of the trustee must be for the benefit of the ____________. 

A

Beneficiary

113
Q

What is the formula for calculating individuals personal net worth?

A

Assets - liabilities = net worth

114
Q

To whom all the earnings produced in an irrevocable trust, normally be taxed

A

The trust

115
Q

When selling inherited securities, how is the beneficiaries cost basis calculated

A

The cost basis is the assets market value at the time of death, a stepped up cost basis

116
Q

T/F: when conducting her clients financial analysis, liquid investments, would be considered long-term assets

A

False. Liquid investments would be considered current assets.

117
Q

T/F: Under ERISA, business decisions (choosing the type of plan) are made by fiduciaries.

A

F; Business decisions are made by settlors and are referred to as settlor functions.

118
Q

If an employer makes a Keogh contribution on its own behalf, what must be done for his employees

A

A contribution at the same percentage must be made for the employee

119
Q

What does it mean to say a limited partnership is a pass through investment?

A

The result of the business venture, profit and losses, flow through directly to the investor

120
Q

Contributions to a Keogh plan are solely based on ___________ income.

A

Self employment

121
Q

What is the penalty for making excess contributions to an IRA?

A

6% of the excess

122
Q

__________ government the extension of credit by BDs

A

Reg T

123
Q

What is adjusted gross income?

A

An individuals taxable income (wages, commissions, tips, dividends, and interest)

124
Q

When must IRA withdrawals begin? In order to avoid the late withdrawal penalty?

A

Hi April 1 of the year after an individual turns age 72

125
Q

The ________ is the person who has fiduciary control over a trust

A

Trustee

126
Q

In which type of trust could the grantor not also be the trustee?

A

A testamentary trust, since it is established by the estate of the grantor

127
Q

How often me an individual roll over an IRA?

A

Once per rolling 12 months

128
Q

What is an advantage to being formed as a corporation as opposed to a partnership?

A

Partnerships are dissolved due to the death of any of the partners, while corporations continue

129
Q

What two types of business can have a single owner and flow through tax treatment?

A

Sole proprietorships and subchapter S corps

130
Q

T/S: access contributions made to an IRA will still be deductible and will grow tax deferred

A

False. Excess contributions are non-deductible, and will not grow on a tax deferred basis.

131
Q

For what reasons man individual taken early withdraw from his IRA without penalty?

A

Death, disability, qualified, higher education, homebuyer $10,000 limit, birth or adoption of a child $5000 limit

132
Q

Income and estate tax are examples of a ___________ or __________ tax.

A

Progressive; graduated

133
Q

T/off: mortgage payments are found on the customers, cash flow statement

A

True. Mortgage payments are also found on the income statement.

134
Q

Describe the employees who must be eligible to contribute to an ERIS a qualified plan

A

Employees who are 21 years or older with one year of full-time service

135
Q

List some retirement accounts I have required minimum distributions

A

Required minimum distribution supply to traditional IRA’s 401(k)s 457’s and 403B plans

136
Q

Identify the acronym: ESA

A

Education savings account

137
Q

To open any account on behalf of a corporation, what document must agents and IAR’s examine?

A

Corporate resolution

138
Q

The ____________ has the authority to regulate margin requirements.

A

Federal reserve board

139
Q

According to ERISA, are there any standards that must be followed, regarding how many is invested?

A

Yes. The plans trustee must abide by the uniform prudent investor act.

140
Q

Under Reg T, does the payment date requirement apply to cash or margin accounts?

A

Payment is required within four business days for both (100% in a cash account but 50% in a margin account)

141
Q

T/F: IRA contributions must be made in cash.

A

True. Although IRA contributions must be made in cash, the account may be invested in various securities.

142
Q

How is a Roth IRA contribution different from a traditional IRA contribution?

A

The Roth IRA contribution is always made on an after tax basis

143
Q

A simple 401(k) may not be established by a business that has more than_____employees.

A

100

144
Q

Identify the acronym: AMT

A

Alternative minimum tax

145
Q

The maximum contribution to an IRA is _____% of earned income up to $_______.

A

100%; $6,000

146
Q

Grandparents contributing to a grandchild’s 529 plan may give how much money and still avoid gift tax consequences?

A

Frontloading, five years of contribution to the loud; therefore, each could contribute $80,000 for a total of $160,000

147
Q

If a person receives a collectible as a gift, what is the cost basis for tax purposes?

A

The cost basis is usually the donors original cost or the purchase price

148
Q

Retirement, goals, future college, tuition, and remaining mortgage payments are examples of _______ needs.

A

Capital

149
Q

Who is eligible for a 457 plan?

A

Employees of state and local governments

150
Q

What are the general characteristics of joint tenants in common accounts?

A

It has multiple owners in each has trading rights. If one owner dies, his account value passes to his estate.

151
Q

When is an individual eligible to make tax deductible contributions to a traditional IRA?

A

We’re not covered by an employer sponsored plan, or one covered by a plan and below in adjusted gross income limit

152
Q

T/F: limited partnership units are in liquid in require permission of the general partner to sell

A

True

153
Q

A revocable trust will eliminate ________, but not reduce ______ tax.

A

Probate; estate tax

154
Q

What form of business provides owners with limited liability and income that flows through to its investors?

A

A limited liability company

155
Q

Per IRS Publication 950, the gift tax annual exclusion is $_______, but is adjusted by the cost of living (now $_______).

A

$10,000; $16,000

156
Q

T/off: a defined contribution plan provides employees with a fixed monthly payment at retirement

A

False. The statement describes a defined benefit plan.

157
Q

Describe the tax treatment of contributions made to a 529 plan.

A

They are after-tax contributions that may possibly grow tax free

158
Q

Anyone with ________ income may contribute to an IRA.

A

Earned

159
Q

The ______ tax rate is a rate that is used to text the last dollar amount that a person earns

A

Marginal

160
Q

T/off: when managing assets in a trust, the trustee should consider the grantors tax status

A

False. Generally, the trustee should act in the best interest of the beneficiary not the grantor.

161
Q

Identify the acronym: UGMA/UTMA

A

Uniform gifts to minors act/uniform transfers to minor act (governs custodial/minors accounts)

162
Q

Give two examples of non-qualified retirement plans

A

Payroll deduction plans, and deferred compensation plans

163
Q

For employers offering SEP plans, where are contributions made on behalf of their employees directed?

A

In the employees individual SEP IRA

164
Q

What is the benefit of establishing a revocable trust?

A

It avoids probate

165
Q

T/F: tax refunds are found on a customers cash flow statement

A

True. Tax refunds or cash, inflows money coming in to a customers account.

166
Q

T/S: employers are required to contribute a specific amount to their employees SEP IRAs

A

False

167
Q

How are withdrawals from a traditional IRA treated for tax purposes?

A

If all contributions were deductible than the entire withdrawal is taxed as ordinary income

168
Q

If Joe’s 55 years old, how much can you contribute to his IRA?

A

For anyone, 50 or older, and additional 1000 is allowed, making the maximum contribution $7000

169
Q

Without incurring gift, taxes, individuals may give gifts up to $________ per year to any number of persons.

A

$16,000

170
Q

Is income generated by a limited partnership taxed once or twice?

A

Only once, and it is at the partners level. The program itself is not a taxable entity.

171
Q

T/off: S corporations may have foreign resident as owners.

A

False. All owners of S corporations, must be US citizens or resident aliens.

S 66 (12 decks)

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