Chapter 9 Part 2 Flashcards
Under AMT rules, these taxpayers must compute their income taxes
twice. An individual subject to the AMT must first calculate his taxes using the standard method, and then he must recalculate his tax liability using the AMT method. The taxes due will be the greater of the two calculations
Individuals may transferassets or give a gift of up to
“$14,000 per year to any
number of persons (related or unrelated) without incurring gift taxes. A married couple may
combine their individual gifts for a total of $28,000 per recipient. Amounts above the current limits will be subject to gift tax. In addition, the person receiving the gift will not need to pay income taxes on the gift”
There is an exception to the marital deduction. When one spouse is not a U.S. citizen, all gifts or inheritances will be
fully taxable. In this situation, the couple might consider establishing a Qualified Domestic Trust or have the spouse become a U.S. citizen, in order to qualify for the marital deduction
Capital gains arc generated when an investment is sold for a greater value than its cost basis. If an investment has been held for
one year or less at the time of the sale, the gain is considered short-term and will be taxed at ordinary income rates. However, if the asset is held for more than one year, the gain is considered long-term and is taxed at a maximum rate of 20%
Capital losses are generated when an investment is sold for less value than its cost basis. As with capital gains, if an investment has been held for
one year or less at the time of the sale, the loss is considered short-term. If the asset is held for more than one year, the loss is considered long-term
Capital losses are
not taxed. Instead, the IRS requires capital gains and capital losses to be netted
Neiling capital gains and losses will permit an investor to
nel (offset) capital losses against capital gains with no maximum dollar limitation. The result will be a net capital gain or a net capital loss
Net short-ter, capital gains or net long-tenn capital gains are taxed at the rates previously specified. however, if an investor has both net long-term gains and net short-term losses, these two figures must be
netted before the 20% rate applies
Net capital losses may be used to offset ordinary income on a
dollar-for-dollar basis in any tax year, up to a maximum of $3,000. Excess capital losses in a particular year may be carried forward until the excess net losses have been offset by net gains
Net Worth
Total Assets - Total Liabilities
Liquid net worth
“excludes assets that arc not readily converted into cash such as real estate, limited
partnerships, and stock in small companies. When analyzing a client’s financial profile, advisers must consider his liquid net worth (e.g., stocks, bonds, mutual funds, and savings accounts) to accurately evaluate his financial position”
Risk is defined as
the chance taken when an investment’s actual return will be different from its expected return
suitability is dependent on whether
the investment was appropriate for the client, given all the circumstances, not on simply whether the client could afford the losses
As a general rule, most people should have a cash reserve equal to
“at least three
at least 3 months’ living expenses. In certain circumstances, such as when a client’s income is unpredictable, it may be wise to maintain a larger cash reserve. Capital reserves should he kept in a safe, liquid investment such as a money-market fund”
Funds invested in Uniform Gifts/Uniform Transfers to MinorsAct accounts (UGMA/UTMA accounts) can be used for purposes of
funding education expenses. Other options in saving for college include Coverdell Education Savings Accounts and Qualified Tuition Programs such as 529 Plans