Final Pass Through of the PreStudy

Question 1

an individual is required to file if net earnings from self employment are at least ______

Answer 1

$400

Question 2

taxation of punitive damages and compensatory damages

Answer 2

punitive damages are generally INCLUDED for gross income (unless for wrongful death)
Compensatory damages are excluded

Question 3

taxation of scholarship

Answer 3

scholarships for tuition and books are excluded
portions for room and board are taxable income

Question 4

student loan interest deduction max

Answer 4

2500
deductible on the schedule 1

Question 5

when does medicare tax rate increase and to what amount

Answer 5

wages >$200k or $250k MFJ

increases to 2.35% (1.45% +.9%)

Question 6

self employment income includes

Answer 6

net schedule C income
general partnership income (K1)
board of directors fees
part time earnings (1099)

Question 7

calculate gain on an installment sale

Answer 7

divide the gain realized on the sale by the total contract price

Question 8

C corporations and dividend received deductions

Answer 8

only for C corps
50% of dividends received from qualifying corps may be excluded from income
requires less than 20% ownership in the distributing corporation
20-80% ownership - 65% exclusion
>80% - 100 excluded

Question 9

Section 1244

Answer 9

Qualified small business stock
C or S corp
initially capitalized with no more than $1M
Loss of $100k/year on a joint return is considered to be an ORDINARY rather than a capital loss

Question 10

If a business is profitable it should be:

Answer 10

C corporation
Personal Service Corporation

Question 11

if a business has loss and is risk free, it should be

Answer 11

sole prop
partnership

Question 12

if a business has losses and is risky it should b

Answer 12

S corporation
LLC
LLP

Question 13

conduit entities

Answer 13

S corporations
llcs
sole proprietors
avoid double taxation

Question 14

tax year for trusts

Answer 14

all trusts must use a calendar year EXCEPT 501(a) or charitable trusts

Question 15

all income earned by a revocable trust is taxed to whom?

Answer 15

the grantor because the transfer of property is not complete

Question 16

definition of cost basis

Answer 16

the original investment plus improvements

Question 17

if the FMV on the date of the gift is greater than the donor’s adjusted basis…..

Answer 17

then use the donor’s adjusted basis

Question 18

gifts of appreciated property have what basis?

Answer 18

the donor’s basis goes over to the donee

Question 19

loss gift basis

Answer 19

if the FMV on the date of the gift is less than the donor’s adjusted basis in the gift, then:
1. a loss is measured using the FMV on the date of the gift
2. a gain is measured using the donor’s basis
3. if the sale price of the gift is between the donor’s basis and the FMV on the date of the gift, no gain or loss is recognized

Question 20

basis of inherited property

Answer 20

FMV on the date of the decedent’s death

Question 21

MACRS 5 year property recovery year 1 and 2

Answer 21

20 %
32%

Question 22

MACRS 7 year property recovery year 1 and 2

Answer 22

14.29%
24.49%

Question 23

179 deduction

Answer 23

expense (rather than capatilize) a limited dollar amount of tangible property
$1,220,000
generally 1245 property
cannot create a loss

Question 24

what is realized gain in a like-kind exchange

Answer 24

gain at the time of the transaction

Question 25

what is recognized gain in a like-kind exchange

Answer 25

the part of the realized gain that is immediately taxable

Question 26

time limit on like kind exchanges

Answer 26

identified in 45
transfer complete in 180 days

Question 27

publicly traded partnership losses

Answer 27

can not be netted against gains of another publicly traded MLP
can only be used against the future income from that same partnership

Question 28

unused charitable deduction

Answer 28

can be carried forward for the next 5 years (additional) or until the taxpayer’s death

Question 29

by matching the duration of a bond or bond portfolio to the time horizon for a client’s financial goals you can offset what risks?

Answer 29

reinvestment rate risk
interest rate risk

Question 30

if interest rates are expected to rise (what bonds to buy)

Answer 30

buy higher coupon bonds with short marturities to shorten duration

Question 31

if interest rates are expected to fall (what bonds should you buy)

Answer 31

buy low coupon bonds with long maturities to lengthen duration

Question 32

Bond Price Volatility
When the coupon is smaller the price fluctuation is ______
When the term to maturity is longer, the relative price fluctuation is _____
When the market interest rate is lower, the relative price fluctuation is ______

Answer 32

greater
greater
greater

Question 33

convexity is largest for

Answer 33

low coupon bonds
long maturity bonds
low yield to maturity bonds

Question 34

nominal yield

Answer 34

the stated rate of interest on the bond (the coupon rate)

Question 35

taxation of GNMA interest

Answer 35

taxable at the federal, state, and local level