dalton quiz misses Flashcards

1
Q

Which of the following statements concerning the OASDHI earnings test for the current year is correct?

A

The earnings test does not apply after normal age retirement (but still applies at 62).
The monthly exempt amount is $3,490 ($41,880 annualized) in 2015 for those months in the year of normal retirement age BEFORE you actually reach normal retirement age.
The test uses only earned income.
No passive or portfolio income is used in calculating the earnings.

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2
Q

What is the early withdrawal penalty for a SIMPLE IRA plan during the 2-year period beginning on the date the employee first participated in the SIMPLE plan?

A

25% is assessed only during the first 2-year period of participating in the plan. This does not require that each contribution stay in the plan for two years, only that the participant be in the plan for two years.

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3
Q

Based upon the Internal Revenue Code, which of the following statement(s) is/are accurate?

A

I. Medical expenses paid as a benefit to a surviving spouse are excludable from gross income only to the extent they would have been excluded if they had been paid to the employee.

II. Highly-compensated employees may lose their tax-free status of medical benefits under a self-insured plan which is discriminatory.

III. A highly-compensated employee may be taxed on part of his or her medical expenses for which he or she is reimbursed under a discriminatory self-insured plan, even if the same benefits are available to all workers.

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4
Q

characteristics of defined contribution pension plans

A

Defined contribution pension plans must have a definite allocation formula based upon salary and/or age or any other qualifying factor.

Contributions may be made without regard to company profits and, because it is a pension plan, are fixed by the funding formula and must be made annually.

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5
Q

When would you advise a person not to wait to exercise a nonqualified stock option?

A

If all gain has been apparently made in a security, rather than lose the profit, and since there are no special advantages to holding non-qualifieds, it may be the time to exercise and to follow with an immediate sale.

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6
Q

Which individuals are currently entitled to retirement benefits based on a husband/ ex-husband’s SS account?

A

any ex-spouse married at least 10 years and has not remarried

Current spouse must be eligible for SS (by age) and husband must be already taking benefits himself

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7
Q

Characteristics of a target benefit plan

A

I. It favors older participants.

II. It requires actuarial assumptions at inception.

III. The maximum deductible employer contribution is 25% of covered compensation.

IV. The maximum individual allocation is the lesser of 100% of pay or $53,000 (2015).

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8
Q

Services provided on a discounted or free basis to employees are not includible in taxable income to the employee under which of the following circumstances?

A

I. The employer must incur no substantial cost in providing the service.

II. Services offered to the employees must be in the line of business in which they are working.

III. Services cannot be discounted more than 20% of the price that is available to customers.

IV. If there is a reciprocity agreement between two unrelated employers in the same line of business.

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9
Q

characteristics of social security benefits

A

Retirement Survivorship Survivorship Disability
Fully Insured Fully Insured Currently Insured ageBase
Participant 100% Deceased Deceased 100%
Child Under 18 50% 75% 75% 50%
Spouse w/ Child under 16 50% 75% 75% 50%
Spouse Age 65 50% 100% 0% 50%
Retirement Survivorship Survivorship Disability
Fully Insured Fully Insured Currently Insured Based on Age
Spouse Age 62 40% 0.83 0 40%
Child Under 18 50% 75% 75% 50%
Spouse Age 60 N/A 72% 0% N/A
Dependent Parent (age 62) 0% 75/82.5% 0% 0%

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10
Q

Characteristics of COBRA

A

Employers must provide COBRA if they have 20 or more employees.
A change in benefit status will trigger COBRA eligibility.
COBRA non-compliance carries a penalty of $100 per day per participant.
After 36 months, the maximum period for continuation of coverage terminates.

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11
Q

characteristics of HIPAA of 96

A

The Act limits “pre-existing look-back period” to 6 months.
Does not allow pregnancy to be considered pre-existing.
The Act limits the pre-existing conditions exclusion period to 12 months.

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12
Q

Characteristics of FSA

A

FSAs are funded with pre-tax dollars as part of a cafeteria plan.
Unused funds at the end of the year revert to the employer who is prohibited from returning the funds directly to the forfeiting employee.
Dependent care FSAs are limited to $5,000 per year.
Medical FSA funds can only pay for medical expenses.
Payment of child care expenses would be non-qualified expenses.

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13
Q

How is life insurance utilized to finance the obligation of an employer under a non-qualified deferred compensation plan?

A

A company can defer compensation that would otherwise be due an employee and use the amount to purchase life insurance on the employee in the company’s own name while paying the premiums for the policy.

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14
Q

Defined contribution pension plan characteristics

A
  • must have a definite allocation formula based upon salary and/or age or any other qualifying factor.
  • Contributions may be made without regard to company profits.
  • contributions are fixed by the funding formula and must be made annually
    Money Purchase Pension Plan and Target Benefit Pension Plan are defined contribution pension.
    Target is a subset of MPP favoring older employees.
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15
Q

How do you determine an estate tax base?

A

this is asking about what is added back to get to the ESTATE TAX BASE, not what is included in the gross estate.

  • Adjusted taxable gifts are added back to the taxable estate in determining the estate tax base at the date-of-gift value ($XXX) minus the annual gift tax exclusion ($14,000) to arrive at the add back amount.
  • all gifts are included at transfer value, but application of the annual gift exclusion ($14k) may fully offset the gift.
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16
Q

what distributions of IRC Section 1245 recapture property may result in the immediate recapture of some or all of previous depreciation deductions?

A

Section 1245 recapture is applied to the sale of depreciated assets for cash, notes, either or both.
does not include:
1 property distributions which are not a sale.
2 like-kind exchanges which are exchanges not sales.
3 property transferred at death is not classified as a sale.

17
Q

Top heavy defined contribution plan requirements

A

1 employer must contribute a minimum of 3% of compensation or the contribution rate of the key employees (whichever is lower) per year to non-excludable, non-key employees for each year that the plan is top heavy.
2 If employer contribution to key employees is 2%, then employer contribution to non-excludable, non-key employees must be 2%.
3 The plan must fully vest after three years of service if the vesting at two years is zero. (if it was 5 yr cliff, now becomes 3 yr cliff due to top heavy).

18
Q

how is standard deduction for a dependent calculated?

A

standard deduction is the greater of $1,050 or $350 plus EARNED income but not to exceed the normal standard deduction. – std deduction does NOT include passive/ portfolio income, but, this income is taxable as well.

19
Q

what is a disadvantage of a Simplified Employee Pension plan (SEP) for an employer?

A

SEPs do not allow forfeitures - all vested

20
Q

what are Non-forfeiture rights (or provisions)?

A

Non-forfeiture rights (or provisions) arrange an orderly legal structure to assure monies paid on an insurance policy are not simply absorbed by the company without recourse in the event that an insured decides to terminate coverage.

Two other such provisions include “reduced paid-up” and “extended term.”

21
Q

explain the tax ramifications of a non-qualified deferred compensation plan

A

I. A participant in an unfunded plan will not be currently taxed if the promise of benefits is unsecured and the agreement is executed prior to the first day of service under the agreement.

II. A funded plan with a “Rabbi Trust” will not be currently taxable to the participant, even though vested in the benefits, due to the “substantial risk of forfeiture.”

III. NPV of the guaranteed future income will be included in the gross estate of the deceased participant.

22
Q

characteristics apply to paired plans (also known as “tandem plans”)?

A
  • Generally combines a money purchase pension and a profit-sharing plan.
  • Defined contribution plans do not require actuarial assumptions.
  • Total contributions to both plans is limited to lesser of 100% or $53,000 (2015) by IRC Section 415.
  • The profit sharing plan is limited by IRC Section 404 to 25% of covered payroll.
  • Employees bear the investment risk in DC plans.
23
Q

distributions from an IRA characteristics

A
  • Section 72 annuity rules govern an IRA distribution that includes non-deductible and deductible contributions.
  • After-tax contributions are not subject to taxation or premature distribution taxation.
  • All amounts in an IRA are included in gross estate.
24
Q

net operating income differs from net income in what way?

A

net operating income adds interest and depreciation expenses back to net income.

25
Q

Exceptions and Exemptions to the RIA rules

A

Exceptions - TABLES are incidental - anybody whose advisory service is incidental to the conduct of business
Teachers Accountants Brokers
Lawyers Engineers

EXEMPTIONS from registration - VIPs are SaFE
Venture Capital Insurance companies
Private funds

26
Q

which trusts permit accumulation of income?

A

Only the Estate Trust permits income accumulation.

conversely, GPOA & Q-Tip Trusts require distribution of income at least annually to the spouse.
A QPRT and TPP Trust hold Real and tangible personalty and do not earn or accumulate income

27
Q

Constructive receipt doctrine characteristics

A
  • The cash method of accounting recognizes income when received. Receipt may be either actual or constructive. Constructive receipt is when the taxpayer has the right to the money although they are not in possession thereof.
  • A secular trust constructively belongs to the beneficiary therefore constructive receipt applies.
28
Q

What benefits are available to the survivors of a deceased worker who was currently insured but not fully insured at death?

A

I. Lump sum death benefit of $255.
II. Mother or father’s spousal benefit for caring for a qualifying child under age 16.
III. Income benefits to a child under age18.
IV. Survivor benefit to spouse (assume not remarried) at their full retirement age ONLY IF they have a qualifying child.

29
Q

What affects (and in some cases limits) the liability of the insurer?

A

1 Insurable interest, wihtout it, insurance cannot be sold.
2 Face value is the most (limit) an insurer will pay.
3 Deductibles are paid by the insured, and other insurance is taken into account in all policies but life insurance, where face value limits the amount paid.
NOT rate structure though - just actuarial balancing

30
Q

QPRT cjharacteristics

A

QPRTs can hold only one residence.
The donor retains all tax advantages.
Any income is taxed to the donor.
Since it is property, income is not distributable until sold

31
Q

Life insurance settlement options include:

A

Fixed period payments.
Fixed amount installments.
Interest Only

NOT reduced paid-up insurance, which is a non-forfeiture provision.