Formulas to Remember Flashcards
NUA
This is the difference between the employer’s cost basis and the market value at lump-sum distribution to employee
RMD to take at a certain age (divisor given)
- divide by divisor for the year before. (Example- RMD taken at age 72? Use divisor for 71)
Inflation - Adjusted Rate
[(1+ investment return / 1+ inflation) - 1 ] x 100
Amount of net unrealized appreciation
Stock is contributed to the retirement plan with a basis of $20k. The stock is distributed at retirement with a market value of $200k. The NUA, $180k, is not taxable until the employee sells the stock, but the $20k is taxable now as ordinary income.
The $180k is always LTCG. If the client sells the stock for $230k, the $30k of extra gain is either STCG or LTCG depending on the holding period after distributed at retirement.
Amount a sole prop or partnership can contribute to a Keogh (only these two entities can do these)
Self-Employment Tax must be computed and a deduction of one-half of the Self-Employment Tax must be taken before determining the Keogh deduction.
Shortcut below takes into account Self-Employment Taxes:
If contribution 15%: multiply by 12.12% of net earnings
If contribution 25%: multiply by 18.59% of net earnings
Amount of excess disparity allowed for defined contribution plans that integrate with social security
Base % + permitted disparity = excess %
base % = DC plan contribution for compensation below integration level
permitted disparity= lesser of base % or 5.7%
Excess %- DC plan contribution for compensation above integration level
plan with 2-6 year graded vesting schedule– 7.5% money purchase plan (this is the ER contribution amount) – Worked for 5 full years. “What amount of her account balance is vested?”
Look at ER contributions for each year. Ignore year one.
Add ER contributions for years 2, 3, 4, and 5.
If salary for these years is given, just multiply 7.5% x salary to get the match amount.
At the end of year 5 she’d be 80% vested.
(end of year 2- 20%, EOY 3- 40%, EOY 4- 60%, EOY 5- 80%)
Multiply 80% times the total contribution amount and that’s her vested amount.
Breakeven for a call
Strike + Premium
Breakeven for a put
Strike - Premium
Intrinsic value for a put
IV = EP - MP
Intrinsic value for a call
IV = MP - EP
Coefficient of variation (given SDs and average returns of 3 stocks, lowest COV with be least risky)
For each stock, multiply the standard deviation (0.02) time the average return (0.13)
To calculate increase in basis for a stock position that includes dividends taken for cash and reinvested
Only the dividends reinvested increase the basis (then divide by number of shares)
Yeild to call on a bond calc
- Do regular time value money calc but replace the FV and n with updated figures
Net Operating Income
gross rental receipts + non rental income
= potential gross income (PGI)
- vacancy and collection losses
= effective gross income
- operating expenses (excluding interest and depreciation)
= NOI
divide this by the capitalization rate to arrive at a property’s intrinsic value
Dividend payout ratio
Earnings per share (ex. $1.90/share)
How to calculate the margin requirement for a position
margin requirement=
(1- Initial margin percentage)
—————————————— x purchase price of the stock
(1- maintenance margin percentage)
ex. (1-0.5)
———– x 150 = $100 (person will get a margin call if the price falls below this pps)
(1-0.25%)
If stock is $____, how much will the dollar amount of the maintenance call be?
Take the maintenance margin rate (ex. 30%) and multiply that the current value of the stock. The 30% is what’s required to be held.
To calculate geometric mean return
- Add 1 to the returns (25% becomes 1.25)
- Multiply all those returns together –> That becomes FV
- PV = -1 (always)
- n= number of years of investment
- solve for i!
Book value
Accounting value of common stock outstanding + capital in excess of par + retained earnings
To get R2 when you don’t have it
square the correlation coefficient
Calculation of deductible casualty loss
FMV or basis (whichever is lower) - insurance coverage - $100 - 10% of AGI (if presidentially declared disaster)
Calculation to figure out how much to pay in taxes to avoid Tax Underpayment Penalty
Pay whichever is less:
- 90% of current year tax liability
- 100% of the prior year’s tax liability (or 110% of last year’s if AGI over $150,000)
Self Employment Tax
0.1413 x self employment income
Recognized Gain
Usually the recognized gain = the boot received
it’s the LESSER of the realized gain and the boot received
Realized Gain
FMV (of prop received) \+ boot (usually recognized gain) - basis of property given up \_\_\_\_\_\_\_ = realized gain
Adjusted basis in a building after making some modifications to it
Amount building purchased for \+ legal fees \+ renovations ------------------- = cost basis - any cost recovery deductions ------------------- adjusted basis
Basis for the owner of an S Corp
Cash + Direct Loans
**BANK loans and corporate debt do not increase basis
Deductible Investment Interest Expense
The amount of interest expense up to net investment income (investment income = basically any non-long term income)
Amount to to deduct for self employment tax
1/2 of the SET (14.13% of gross self employment income)
Amount to add back to taxable income to arrive at AMT (ISOs)
The difference between the value of the stock on the date of exercise and the strike price of the option
To find average cost per share given an amount of a bunch of shares purchased at a particular price during certain years
Find the number of shares purchased (take amount invested total/ cost per share)-now you have the total shares
Take the total amount invested and divide it by this # to get the cost per share.
Taxable ordinary income at surrender of life insurance policy
Net Cash Value (net of loan) + Loan (add back) - premiums paid (amount billed- divs used to pay premium)
Taxes an individual will pay if they take a settlement offer for a life policy
To calculate the gain (to be multiplied by cap gains rate) –> proceeds - basis
Don’t pay attention to cash value
To calculate how much a carrier will pay in monthly disability benefits while also receiving social security disability benefits
Take the base monthly amount of purchased policy + (difference between what social security pays per month and the SIS monthly benefit is)
Basically you get the base of the plan, and then the SIS benefit too, but the SIS benefit is reduced by whatever amount is already being collected from social security.
Calculation for replacement cost coverage
Replacement cost x coinsurance % = insurance required
insurance required / insurance carried x loss - deductible = amount paid by insurance
another way to say:
(insurance coverage had)
_______________. X loss - ded
Replacement cost x coinsurance %
Education Needs Analysis (3 steps)
- ) Calculate the cost of tuition for the freshman year (Solve for FV given facts)
- ) Calculate the lump sum needed at start to fund all years (Use that FV as PMT, solve for PV )
- ) Calculate amount that must be saved at the end of each year (Set the lump sum as FV, solve for PMT)
How much can someone take out as an equity loan and deduct the interest if used for renovations
The difference between the FMV of the home right now and the outstanding mortgage (pretty sure this is the equity)
Income tax deduction amount a donor receives for a charitable gift annuity
Difference between the value or the transfer and the PV of the annuity stream
Income tax deduction amount a donor gets for transferring assets to a charitable remainder trust (CRUT/CRAT)
The FMV of assets transferred less the value of the income interest (basically, the PV of the annuity payments the donor will be getting)
Amount of installment sale included in gross estate of decedent
The FMV of the PV of all remaining payments
How to figure out how much GSTT is due given the estate amount
You take the estate amount and subtract the 11.7 (typical) to get to the taxable amount. Take 40% and that’s the federal estate tax owed. Example- 16.7 million - 11.7 = $5,000,000
$5,000,000 (0.40)= $2,000,000
Now take the 2 mil out which goes to taxes and you’re left with 3,000,000. You still need to pay GSTT (40% again) so multiply 40% times the 3mil. Which is $1,200,000.
$2,000,000 (estate taxes) + $1,200,000 (GSTT) - 3.2 mil taxes paid
Deductible amount for a charitable gift annuity
It’s the difference between the VALUE of the annuity and the COST to purchase it.
Joe gifts $1,000,000 to a school. He get’s an annuity worth $750,000. $250,000 is a deductible gift.
Deductible amount for a pooled income fund
Charity gets whatever is left over in the fund after distributions.
Income tax deduction on the present value of what the charity will get (remainder interest)
Gift tax deduction on this too!!!
Taxable gain on something (land for example) sold to charity given FMV, seller’s basis, and amount sold for. (Charitable bargain sale)
sale
——- X basis
FMV
That becomes the new basis in calculating the gain.
Need to ratio to get the % of the sale that’s attributed to a sale and deductible charitable gift.
How to calculate social security reduction before FRA
take months early over 180- that’s the percent reduction
To figure out how much of a husband’s TERM life policy WHERE HIS WIFE IS THE INSURED is included in his estate if he dies (probate estate)
term policies- it’s the unearned premium (NO 3 YEAR RULE)
What? Those are premium payments remaining for the year that haven’t been paid
To figure out how much of a husband’s WHOLE LIFE policy WHERE HIS WIFE IS THE INSURED is included in his estate if he dies
Whole life- it’s the terminal reserve plus the unearned premium. What?
What? Those are premium payments remaining for the year that haven’t been paid + the cash value of what it would have been at that point where the premiums end. (that sum is called the replacement value I think)
How do you figure out what the credit (?) for historic rehabilitation is? (phaseout is $200-250K)
multiple amount up to 25k by the person’s marginal bracket
Emergency fund ratio (EFR) = liquid assets ÷ nondiscretionary monthly expenses
liquid assets ÷ nondiscretionary monthly expenses
