Deck 6

Question 1

If your return is 60+ days late, what is your IRS penalty?

Answer 1

The lesser of $435 or amount of tax due.

Question 2

When does the clock start for failure to file and failure to pay penalties?

When does the 2nd month begin?

Answer 2

April 15. The second month begins on May 15

Question 3

Are un-reimbursed employee business expenses deductible?

Answer 3

No. Not since the TCJA of 2017.

Question 4

Can a taxpayer deduct loss property at basis?

Answer 4

NO! Loss property can only be deducted at FMV.

Question 5

What is the valuation for short-term gain investment property donated to a charity: basis or FMV?

Answer 5

Donated ST gain property is valued at the lesser of adjusted basis or FMV.

Question 6

How are charitable contributions of real property valued?

Answer 6

FMV

Question 7

Can you take an itemized deduction if you travel and stay in a hotel to get medical treatments?

Answer 7

Yes! .16/mile, and $50 PER PERSON per night in hotel.

Question 8

Are union dues or job hunting expenses deductible?

Answer 8

No!

Question 9

What is the max. Itemized deduction for state, real estate, or sales taxes?

Answer 9

10k

Question 10

When can you take a deduction on damage to a business asset for which you received an insurance settlement?

Answer 10

When net insurance (ie, settlement less deductible) proceeds are less than adjusted basis.

Question 11

Does non-prescription insulin qualify for a medical expense deduction?

Answer 11

Yes!

Question 12

Can you deduct medical expenses for someone who would be a dependent except they have their own income?

Answer 12

Yes. Very special exception.

Question 13

What is the limit on deducting investment interest expense? What happens if there’s excessive interest expense not deducted?

Answer 13

Investment interest expense is limited by investment income. Excess interest not deducted can be carried over.

Question 14

Can you deduct interest used to purchase a tax exempt investment?

Answer 14

No!

Question 15

Does participation in a SEP limit your ability to contribute to an IRA?

Answer 15

Yes.

Question 16

When calculating the allowable contribution to an IRA of a participant in a qualified plan, how do you incorporate the 50+ additional contribution?

Answer 16

Add it to the 6k from which you deduct the appropriate amount.

Question 17

Do top-heavy rules apply to SEP’s? Can they integrate with SS?

Answer 17

Yes and yes.

Question 18

Is a stock redemption plan the same thing as an entity purchase agreement?

Answer 18

Yes.

Question 19

What is split dollar life insurance? What can it be used for?

Answer 19

Employer and employee share premium costs and death benefit. This can be used to fund a stock redemption, employer purchase agreement.

Question 20

Are insurance premiums to fund buy-sell agreements tax deductible?

Answer 20

No. Both cross purchase and entity purchase agreements are not tax deductible.

Question 21

What definition does SS use for disability benefits?

Answer 21

Any occupation—once you’re SS disabled you’re probably never going to work again.

Question 22

What are ADR’s (American Depository Receipts) for?

Answer 22

To allow US investors to purchase foreign securities.

Question 23

When must you purchase stock to get its dividend?

Answer 23

One day before the ex-dividend date, two days before the date of record. Whoever owns the stock at dawn on the ex-dividend date gets the dividend.

Question 24

Does dollar weighted return = IRR?

Answer 24

Yes!

Question 25

Are TSA deferrals subject to SS taxes? Federal withholding taxes?

Answer 25

Yes and no.

Question 26

Does a 403b have a 3k long service catch up? What is HER?

Answer 26

Yes, but only for HER organizations (Health, Education, Religious). Museums don’t get one.

Question 27

Can REITs pay qualified dividends?

Answer 27

No!

Question 28

Which are the true community property states? What does that mean? What if community property is mentioned, but no specific state is named?

Answer 28

California and Texas. Other community property states have different rules in which transferring in individual assets keeps them individual. If no state is named go with a “some states” answer.

Question 29

When can a taxpayer be charged an accuracy penalty? How much is the penalty?

Answer 29

If he makes a substantial understatement of his tax liability. Generally this is considered to both 10% and $5,000.
The penalty is usually 20% of tax due.

Question 30

What is the penalty for a person who files a fraudulent return? For a preparer?

Answer 30

A preparer pays the greater of $5k or 50% of the amount he charged to prepare the return.
The individual pays 75% of the deficiency.

Question 31

What is the best addition to a portfolio?

Answer 31

The lowest correlation coefficient! -1 is the best.

Question 32

What risk measure does the CML use? What does the SML use?

Answer 32

The CML uses SD. The SML uses β.

Question 33

What does r-squared measure?

Answer 33

The % of return due to the market.

Question 34

What is the oldest you can be and still have to pay the kiddie tax?

Answer 34

Kiddie tax applies to under 19, or under 24 and full-time student.

Question 35

What law concerns itself with the secondary market?

Answer 35

Securities Exchange Act of 1934.

Question 36

Which act regulates the primary markets?

Answer 36

Securities Exchange Act of 1933.

Question 37

What is a sprinkle provision in a trust (or life insurance)?

Answer 37

A provision that allows the trustee to pass out the trust income (or even corpus) as they see fit.

Question 38

Does a 2503c trust qualify for the annual exclusion?

Answer 38

Yes!

Question 39

What is the primary characteristic of New Comparability plans? Are they expensive to operate?

Answer 39

NC plans given different levels of benefit to different classes of employee. They’re expensive to operate because they require a lot of testing to be sure they’re not top heavy and meet coverage requirements.

Question 40

When are NUA taxes levied and what type of tax liability is incurred?

Answer 40

At distribution, the following taxes are charged under NUA: OI on the original grant, cap gain on the gain between grant value and distribution value.

Question 41

What is simple interest?

Answer 41

The same percentage paid on principal every year. There’s no compounding at all. No TVM calculations!

Question 42

What’s the difference between the Russell 1000 and the Russell 2000?

Answer 42

Russell 1000 = large cap, Russell 2000 = small cap

Question 43

Does Stock Bonus Plan mean Qualified Plan?

Answer 43

Yes!

Question 44

Whose asset is an UGMA?

Answer 44

The child’s.

Question 45

What’s the maximum suspension that the CFP Board gives?

Answer 45

5 years.

Question 46

How is EFC determined?

Answer 46

AGI - Deductions + HSA/IRA Contributions (adding them back in) - taxes paid.

Question 47

What is the unique penalty with SIMPLE accounts? What’s the exception?

Answer 47

If you take money out within the first 2 years the penalty is 25%. The exception is if you transfer SIMPLE to SIMPLE. Any other transfer incurs the penalty.

Question 48

How do you compute NOI?

Answer 48

• Add all income (rents + parking + soda machines)
• Subtract vacancy cost
• Subtract all expenses
• Add interest and depreciation back in if they were included in expenses

Question 49

What is the maximum allowable expense for business related gifts?

Answer 49

$25

Question 50

Explain domestic travel deduction calculations for a trip that’s partly business.

Answer 50

• Deduct all airfare.

- Deduct meals and lodging pro-rata.

Question 51

Explain deductions for FOREIGN travel that’s partly business.

Answer 51

• Airfare = pro-rata, unless trip is < 7 days, < 25% vacation, and employee doesn’t control schedule (then deduct 100%)
• Meals = pro-rata, and deduct 50% unless 2020 or 2021.
• Lodging = pro-rata