Important for Exam Flashcards
1
Q
Like-kind Exchanges (Boot)
A
- boot received = recognized (cash)
- boot paid = 0 recognized, add to basis
- basis carries over from last property
(Boot is not like-kind property)
2
Q
AMT Payable
A
- AMT tax - regular tax = AMT payable
- if regular tax exceeds AMT payable amount of AMT due is 0
3
Q
Phantom Income: Insurance
A
- any type of lapse with a loan
- section 162 life and disability
4
Q
Phantom Income: Investments
A
- zeros/strip income
- TIPS
- declared but not paid dividends and capital gains
- EE bonds (if elected)
5
Q
Phantom Income: Tax
A
- k-1 income from LP/FLP
- recaptures
6
Q
Phantom Income: Retirement
A
- ESOP distribution (basis’ only)
- secular trust
7
Q
Ordinary Income Property (charitable donations)
A
- basis only, up to 50% AGI
- inventory
- work of art created by taxpayer
- use-unrelated property (watch out for artwork and collectibles)
- short term capital gains property
- copy rights
*real estate and stocks are always LTCG property
8
Q
Charitable Bargain Sale Calculation
A
- (sale / fair market value) * basis = adjusted basis
- sale - adjusted basis = taxable gain
9
Q
PIA Calculation
A
PIA - [(# of months before FRA / 180) * PIA]
10
Q
Taxation Management of Distributions Techniques
A
- substantially equal payments
- spread out distributions to take advantage of lower tax brackets
- use after-tax investments for retirement needs
11
Q
DB/DC Limits
A
- DB/DC salary cap = $330,000
- SIMPLE IRA cap = $516,667
- DC max contribution = $66,000 (73,500 if 50+)
- DB max contribution = stuff it like a pig
- tandem plan is a wrong answer
12
Q
When to adopt a Profit Sharing Plan
A
- profits vary year to year
- wants a qualified plan to motivate employees to help make profits
- employees are young, well paid and have lots of time
13
Q
Steps for Solving IRA Problems
A
- look for plan (if none mentioned, assume both can deduct)
- look at ages (highlight and make note if catch-up or not)
- look at salary and AGI, if no salary or earned income mentioned cannot contribute to IRA. Be careful AGI is NOT earned income
14
Q
Special Purposes for Roth IRA’s
A
- 59.5+
- death
- disability
- first home expense up to $10,000
- medical expenses
- medical insurance premiums while unemployed
- substantially equal payments
- higher education cost
- federal declared disasters
15
Q
Nonqualifed Plans Characteristics
A
- may discriminate
- exempt from most ERISA requirements
- no tax deduction for contributions until employee is taxed
- fund earnings are sometimes taxable to employer
- distributions are taxable at ordinary tax rates
16
Q
Qualified Plan Characteristics
A
- may not discriminate
- must satisfy ERISA requirements
- immediate tax deduction for contribution
- earnings accrue tax deferred until distributed
- same as nonqualifed
17
Q
High Loss Severity, Low Loss Frequency
A
Transfer (Insurance)
18
Q
High Loss Severity, High Loss Frequency
A
Avoidance
19
Q
Low Loss Severity, High Loss Frequency
A
Retention and Reduction
20
Q
Low Loss Severity, Low Loss Frequency
A
Retention
21
Q
Owner of S-Corp
A
- tax free benefits
22
Q
Homeowners Coverage C
A
- boats and trailers up to $1,000
- exclusions: property of roomers, boarders, and other tenants; property contained in an apartment regularly rented or held for rental
23
Q
Term Insurance (When to Recommend)
A
- young with low cash flow
- no cash value needed
- temporary need
24
Q
Whole Life (When to Recommend)
A
- forced savings
- guaranteed amount
- conservative
- when don’t specify
25
Universal Life (When to Recommend)
- wants cash value in addition to death benefits
- conservative
- has cash value need
- flexible
26
Variable Life (When to Recommend)
- worried about failure
- various
- risk tolerant
27
Variable Universal (When to Recommend)
- various and flexible
- worried about failure
- young, aggressive, good cash flow, separate funds
28
Flexible Spending Accounts
- no fica, futa, or income taxes
- no LTC
- not an HSA
- use it or lose it 12/31 (dependent care only)
Dep - Dec
Med - Mar
29
QBI Deduction Limit
- 20% up to $464,200 can be deducted For conduit entities
- cannot be service related
30
When to Recommend: Defined Benefit
When an older controlling employee wants to maximize tax-deferred retirement savings for their benefit and when company has very stable cash flows with excess profits
31
When to Recommend: Cash Balance
When company can no longer afford guaranteed benefits under a DB or small company with high earners
32
When to Recommend: MPP
- stable work force
- simple to administer and explain
- stable cash flows and fixed contributions to make annual fixed contributions
33
When to Recommend: PSP
- profits vary
- want to adopt a qualified plan
34
Deferral
$22,500 or $15,500 (SIMPLE)
35
Employee Contribution
$22,500 or $15,500 (SIMPLE) + catch up
36
Employer Contribution
$66,000
37
Can hardship withdrawals come from Profit Sharing Plan
No, has to have 401k provisions
38
Solo 401k vs SEP
- over 50 = Solo 401k because of catch up
- under 50 = SEP
39
Keogh (Partnership’s and Sole Proprietors)
- 25% = 18.59%
- 15% = 12.12%
** used for sole proprietor SEPs as well
40
SIMPLE first 2 year penalty
25% of distribution + income tax
41
Integration with Social Security
- DB, DC, MPP, TB, PSP, SB, SEP
- NO ESOP, SIMPLE AND SIMPLE 401k
42
21 and 2 rule
- not allowed for 401k
43
When to Recommend: SEP
- alternative to qualified Profit Sharing Plan
- contributions year to year; simple and less expensive to install
44
Correlation of Investments **SHORTCUT**
- if 0 choose number closest to 0
- if less than 1; take average of standard deviation and pick next lowest number
* perfectly positive think honda and toyota
* perfectly negative think one up and down
45
Dividend Discount **SHORTCUT**
- calculate based on second number
- choose number higher or lower based on first number (i.e., first number higher choose higher)
46
Benchmarks
Dow Jones - Price Weighted
S&P - Float Weighted
Russell 2000 - popular capitalization weighted
Value Line - equally weighted
Wilshire 5000 - broadest; value weighted
NASDAQ - capitalization weighted
EAFE - international
47
EPS Formula
ROE x Book Value or Net Worth
48
Time Horizon
Should equal duration
