Home Stretch- Frequently Missed (Detailed) (11/6)

Question 1

What are the four main categories of Medicare part B

Answer 1

ADHP

physicians services
home health care
diagnostic tests
all outpatient services of a participating hospital

Question 2

Are “damages- personal injuries (punitive)” taxable?

Answer 2

Yes - generally

Question 3

Main characteristics of an HRA?

Answer 3

solely employer funded

reimburses employees for substantiated medical expenses up to a maximum dollar amount per coverage period

Question 4

What are the four main categories of Medicare part A

Answer 4

H CHC

hospital care
care in a nursing home or facility
home health care
care in a hospice

Question 5

Form HO-6 loss of use limit is ____% of the policy limit on personal property.

Answer 5

50

Question 6

Is there a grace period for the dependent care (max 5k) part of a FSA?

Answer 6

no

Question 7

What does re-entry on a term policy mean?

Answer 7

You could requalify for low cost premiums through abbreviated underwriting

Question 8

When is a life insurance policy in force?

Answer 8

when the policy is delivered, and the premium is collected

Question 9

Do group life policies have more or less “liberal” underwriting?

Answer 9

more liberal

Question 10

In a life settlement question which describes a transaction involving an insured who is not terminally ill and is over 65, look for what type of answer? (regarding the taxation of settlement)

Answer 10

Look for the one with the LTCG answer

Question 11

Form HO-5 provides open perils coverage for personal property.
TF

Answer 11

true

Question 12

In a conversion provision of a life insurance policy, do they have to prove insurability?

Answer 12

no

Question 13

the optimal risky asset portfolio is at the point where the CAL is _____ to the efficient frontier.

Answer 13

tangent

Question 14

characteristics of EE bond in UTMA

Answer 14

owned by the child

taxed as ord income at redemption

Question 15

characteristics of EE education bonds

Answer 15

normally owned by parent

tax free if parent’s AGI is less than phaseout at redemption

Question 16

How do you calculate the conversion price of a bond?

Answer 16

Conversion = ($1,000/$50 what it’s convertible at) x $58 (market price of common) = $1,160

This is higher than what the bond sells for. he should buy it based on conversion value.

*Needs to be in 2 payments per year

Question 17

Under Black/Scholes, what will decrease the value

of a stock option?

Answer 17

an increase in the strike price

An increase in the price of the stock, the time to expiration, the volatility of the stock and in interest rates will increase the value of a call option.

Question 18

If the covariance is 0, what is the correlation?

so then house do you find the SD of a portfolio of two stocks OF EQUAL PROPORTION given the SD and risk of each?

Answer 18

0

you square the two risks, add together, and take the square root

Question 19

In the APT model, when a factor is zero, the factor has no impact on the return because it is _____ or _____.

Answer 19

expected or anticipated

Question 20

Question from LR book- during college years, what are the grant and loan options for WEALTHY people?

Answer 20

PPParent LLLoan for Undergraduate Students (Wealthy parents are a plus)

Question 21

Question from LR book- What are the three funding options for graduate years?

Answer 21

Fullbright schol
stafford loan
529 distribution or coverdell withdrawal

Question 22

Question from LR book- during college years, what are the grant and loan options for POORISH (UNDER $60,000) people?

Answer 22

Pell Grants
Supplemental education opportunity grant
Subsidized Stafford loans

Question 23

Which of the following statements concerning a simple trust is incorrect?

Accumulation of trust income is not allowed.

The trust is treated as a separate tax entity.

Beneficiaries are never taxed on distributed income.

A simple trust can never make distributions of principal or have a charitable beneficiary.

Answer 23

Beneficiaries are never taxed on distributed income.

A simple trust generally must obtain a federal ID number because it must file a tax return. All trust income must be distributed. The trust is treated as a tax entity only subject to a $300 personal exemption. Principal may not be distributed, and no charitable gifts can be made.

Question 24

Which of the following investments would produce phantom income for income tax purposes?

Series I bonds
STRIPS
GNMAs
Private activity municipal bonds
T-Bills

Answer 24

Strips only

STRIPS produce taxable income that is accreted. It is not received until the bond is sold. The inflation and fixed portions of I bond interest are tax-deferred until redemption or maturity (whichever comes first); it is not phantom income. Private activity municipal bonds may create an AMT tax liability, but the income is not phantom. It is received. The question does not say the municipal bonds are zeros.

Question 25

How much is the charitable deduction limited to on loss property?

Answer 25

fmv

Question 26

K-1 of the 1041

Answer 26

is for trusts and estates

Question 27

Does portfolio income count toward AGI? (Think about for things like the $25,000 deduction)

Answer 27

YES

Question 28

K-1 of the 1065 is for

Answer 28

partnerships

Question 29

Interest in a non-publicly traded limited partnership (RELP). Substantial losses. how are they treated?

Answer 29

To realize the passive loss, must dispose his partnership interest. The losses go on a Schedule E and can only be offset by passive income. If bought a non-publicly traded partnership (RELP) that produced income, then use the losses.

Question 30

Tommy Thomas has the following income and losses for the year:

$5,000 loss from ownership (1%) in a limited partnership
$10,000 loss from active participation in a strip shopping center (100% ownership)
$8,000 loss from a 10% interest in an S-corporation in which he is a manager
$75,000 of salary as the manager of the S-corporation
What is his adjusted gross income?

Answer 30

$65,000
Salary ($75,000) - [Active participation (-10,000) + S-Corp loss (-8,000)] = AGI ($57,000)

The exception to the passive rules is “active participation” in real estate. The 5-Corp is active. He manages the business.

Question 31

Is muni bond interest included in AGI calculation?

Answer 31

no

Question 32

Due to inflation, inventory costs have risen. Jack LaRue wants to sell LaRue, Inc. for the best possible price. He wants profits to look as strong as possible. What should he do if he is currently valuating inventory using LIFO?

Answer 32

Use specific identification = BETTER PROFITS
FIFO= BETTER EARNINGS
As an alternative to FIFO or LIFO, businesses may value inventory under a specific identification method. If a taxpayer can specifically identify what to sell he can create a gain, a loss, or neutralize the gain or loss. By doing this, he could create the best profit. If he changed to FIFO, that would increase his earnings.

Question 33

On what tax forms are S corporation distributions normally received by individuals?

Answer 33

Schedule K-1 of 1120S

Question 34

Does a high salary paid to the owner affect S corps?

Answer 34

No
The IRS would not reclassify salary as dividends (conduit theory) but may try to reclassify excessive compensation in a regular corporation.

Question 35

Bob and Fred, brothers, want to start a new restaurant. They will materially participate. They anticipate losses for the first three years due to competition. If one of the brothers dies, they want the survivor to be able to continue the business. They anticipate that they may have to raise additional capital through the sale of interests or have the business borrow funds.

What type of business is most appropriate

Answer 35

LLC
If they have an S corporation, their basis would be limited to cash invested in the business and direct loans, not corporate debt. The LLC would have the same basis as a partnership. This would allow the LLC to take more losses than an S corporation could take. This is an advantage over an S corporation.

Question 36

Reimbursed entertainment expenses and subsidized parking are not self-employment income. tf

Answer 36

t

Question 37

Mrs. P establishes an irrevocable trust for her son. She transfers $500,000 to the trust. The trust principal is placed with a money manager generating 6% taxable income. The trust applied for a whole life policy on her life. The trust will own and be the beneficiary of the policy. The premium of the whole life policy is $13,000 per year. The trust will pay the premium. The remaining income will accumulate in the trust. How will the income be taxed?

$13,000 as a taxable gift to Mrs. P and $17,000 as taxable income to the trust.
$13,000 as taxable income to Mrs. P and $17,000 as taxable income to the trust.
$30,000 as taxable income to Mrs. P.
$30,000 as taxable income the trust.

Answer 37

$13,000 as taxable income to Mrs. P and $17,000 as taxable income to the trust.
This is a tainted irrevocable trust. Only the life insurance premium is taxable to Mrs. P (the grantor). The remaining income is taxable to the trust.

Question 38

An NOL cannot be used by which of the following entities?
Trusts
Regular C Corporations
S Corporations
Self-employed persons

Answer 38

S Corporations
S-Corps and partnerships cannot use NOLs.

Partnerships, S corporations, and LLCs taxed as partnerships can’t take an NOL, but the partners, LLC owners, or S corporation owners can take a loss on their share of the total business loss