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My CFP Flashcards > Formulas to Remember > Flashcards

Formulas to Remember Flashcards

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1
Q

NUA

A

This is the difference between the employer’s cost basis and the market value at lump-sum distribution to employee

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2
Q

RMD to take at a certain age (divisor given)

A
  • divide by divisor for the year before. (Example- RMD taken at age 72? Use divisor for 71)
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3
Q

Inflation - Adjusted Rate

A

[(1+ investment return / 1+ inflation) - 1 ] x 100

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4
Q

Amount of net unrealized appreciation

A

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.

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5
Q

Amount a sole prop or partnership can contribute to a Keogh (only these two entities can do these)

A

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

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6
Q

Amount of excess disparity allowed for defined contribution plans that integrate with social security

A

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

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7
Q

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?”

A

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.

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8
Q

Breakeven for a call

A

Strike + Premium

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9
Q

Breakeven for a put

A

Strike - Premium

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10
Q

Intrinsic value for a put

A

IV = EP - MP

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11
Q

Intrinsic value for a call

A

IV = MP - EP

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12
Q

Coefficient of variation (given SDs and average returns of 3 stocks, lowest COV with be least risky)

A

For each stock, multiply the standard deviation (0.02) time the average return (0.13)

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13
Q

To calculate increase in basis for a stock position that includes dividends taken for cash and reinvested

A

Only the dividends reinvested increase the basis (then divide by number of shares)

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14
Q

Yeild to call on a bond calc

A
  • Do regular time value money calc but replace the FV and n with updated figures
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15
Q

Net Operating Income

A

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

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16
Q

Dividend payout ratio

A

Earnings per share (ex. $1.90/share)

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17
Q

How to calculate the margin requirement for a position

A

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%)

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18
Q

If stock is $____, how much will the dollar amount of the maintenance call be?

A

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.

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19
Q

To calculate geometric mean return

A
  1. Add 1 to the returns (25% becomes 1.25)
  2. Multiply all those returns together –> That becomes FV
  3. PV = -1 (always)
  4. n= number of years of investment
  5. solve for i!
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20
Q

Book value

A

Accounting value of common stock outstanding + capital in excess of par + retained earnings

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21
Q

To get R2 when you don’t have it

A

square the correlation coefficient

22
Q

Calculation of deductible casualty loss

A

FMV or basis (whichever is lower) - insurance coverage - $100 - 10% of AGI (if presidentially declared disaster)

23
Q

Calculation to figure out how much to pay in taxes to avoid Tax Underpayment Penalty

A

Pay whichever is less:

  1. 90% of current year tax liability
  2. 100% of the prior year’s tax liability (or 110% of last year’s if AGI over $150,000)
24
Q

Self Employment Tax

A

0.1413 x self employment income

25
Q

Recognized Gain

A

Usually the recognized gain = the boot received

it’s the LESSER of the realized gain and the boot received

26
Q

Realized Gain

A 
FMV (of prop received) 
\+ boot (usually recognized gain) 
- basis of property given up 
\_\_\_\_\_\_\_ 
= realized gain
27
Q

Adjusted basis in a building after making some modifications to it

A 
Amount building purchased for 
\+ legal fees 
\+ renovations 
-------------------
= cost basis 
- any cost recovery deductions 
-------------------
adjusted basis
28
Q

Basis for the owner of an S Corp

A

Cash + Direct Loans

**BANK loans and corporate debt do not increase basis

29
Q

Deductible Investment Interest Expense

A

The amount of interest expense up to net investment income (investment income = basically any non-long term income)

30
Q

Amount to to deduct for self employment tax

A

1/2 of the SET (14.13% of gross self employment income)

31
Q

Amount to add back to taxable income to arrive at AMT (ISOs)

A

The difference between the value of the stock on the date of exercise and the strike price of the option

32
Q

To find average cost per share given an amount of a bunch of shares purchased at a particular price during certain years

A

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.

33
Q

Taxable ordinary income at surrender of life insurance policy

A

Net Cash Value (net of loan) + Loan (add back) - premiums paid (amount billed- divs used to pay premium)

34
Q

Taxes an individual will pay if they take a settlement offer for a life policy

A

To calculate the gain (to be multiplied by cap gains rate) –> proceeds - basis
Don’t pay attention to cash value

35
Q

To calculate how much a carrier will pay in monthly disability benefits while also receiving social security disability benefits

A

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.

36
Q

Calculation for replacement cost coverage

A

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 %

37
Q

Education Needs Analysis (3 steps)

A
  1. ) Calculate the cost of tuition for the freshman year (Solve for FV given facts)
  2. ) Calculate the lump sum needed at start to fund all years (Use that FV as PMT, solve for PV )
  3. ) Calculate amount that must be saved at the end of each year (Set the lump sum as FV, solve for PMT)
38
Q

How much can someone take out as an equity loan and deduct the interest if used for renovations

A

The difference between the FMV of the home right now and the outstanding mortgage (pretty sure this is the equity)

39
Q

Income tax deduction amount a donor receives for a charitable gift annuity

A

Difference between the value or the transfer and the PV of the annuity stream

40
Q

Income tax deduction amount a donor gets for transferring assets to a charitable remainder trust (CRUT/CRAT)

A

The FMV of assets transferred less the value of the income interest (basically, the PV of the annuity payments the donor will be getting)

41
Q

Amount of installment sale included in gross estate of decedent

A

The FMV of the PV of all remaining payments

42
Q

How to figure out how much GSTT is due given the estate amount

A

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

43
Q

Deductible amount for a charitable gift annuity

A

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.

44
Q

Deductible amount for a pooled income fund

A

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!!!

45
Q

Taxable gain on something (land for example) sold to charity given FMV, seller’s basis, and amount sold for. (Charitable bargain sale)

A

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.

46
Q

How to calculate social security reduction before FRA

A

take months early over 180- that’s the percent reduction

47
Q

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)

A

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

48
Q

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

A

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)

49
Q

How do you figure out what the credit (?) for historic rehabilitation is? (phaseout is $200-250K)

A

multiple amount up to 25k by the person’s marginal bracket

50
Q

Emergency fund ratio (EFR) = liquid assets ÷ nondiscretionary monthly expenses

A

liquid assets ÷ nondiscretionary monthly expenses

My CFP Flashcards (21 decks)

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