Key Points & Discussion Topics Flashcards
Computing AMTI
Add or Subtract (AMT Adjustment Items):
- Standard deduction
- Dependency exemption
- Itemized deductions
- Depreciation
- At risk and other loss limitations
- ISO
- Long-term contracts
Add (Tax Preference Items):
- Depletion
- Tax-exempt bond interest from certain private activity bonds.
- Accelerated depreciation of property (before 1987)
- Excluded gain on sale of qualified small business stock.
When is a prenup valid?
Upon Marriage
Entity vs cross-purchase buy-sell differences - who owns insurance policies in such agreements and who is the beneficiary?
Entity = Owned by the business entity / Outline how the business will buy or redeem an owners interest.
Cross purchase = Owned by individuals / Outlines how the remaining owners will buy the departing owner’s interest.
Mortgage payments that provide options for a jumbo rate mortgage rate vs. a traditional mortgage rate
Jumbo mortgages are considered $726,200 as of 2023.
- Typically carry a higher interest rate and require higher down payments.
83b election was tested more than 3x from what I remember
- Exercise stock options prior to vesting.
- Must be elected within 30 days of grant.
- Big risk if the stock declines.
NUA election questions that test on satisfying qualifying events
- Must elect lump sum distribution from plan.
- Original basis immediately taxable as ordinary income.
Many questions on aspects of Charitable Lead Trusts
- An answer to the disciplianary petition shall be filed wit the Institute staff no later than 30 days later.
- Member must notify institute of a conviction of serious crime within 60 days.
- An appeal from a final order must be filed within 60 days.
- For reinstatement. must file petition to institute within 30 days of expiration of suspension term.
Question on the best target for creditors (similar to what was in the study program)
- Most stated exempt life insurance and annuities from the reach of creditors.
- Almost all state offer homestead protection.
- Qualified plans are generally protected.
- IRAs typically protected up to $1.5M
- Inherited IRAs are at risk from creditor claims.
- TIC / JTWROS / Second home / vacation home are at greater risk to creditors.
ISO stock
- Can only be given to employees
- Not transferable except in event of death
- Annual $100k limit.
- Long term if sold more than 1 year after exercise and if sold more than 2 years after grant,
Section 303
- Value of stock must > 35% of the adjusted gross estate.
- For qualified transactions, distributions in redemption of a deceased shareholder’s stock may be treated at ordinary income tax rates.
72(t) election if first after age 55
- Provides access to qualified accounts prior to age 59.5.
- Distributions must be taken for the longer of 5 years or until age 59.5.
- 3 ways to calculate payments: Annuitization / Amortization / Life Expectancy
IRD
- Allows for estate tax paid on IRA and Qualified Plan assets.
- Applies to income the decedent had the right to, but never received.
- Subject to income and estate tax.
- IRD deduction is taken as the income is received by the bene’s.
Disqualifying dispositions
- Results when one does not adhere to the “2-year from grant” and “1-year from exercise”.
- Potential taxation includes ordinary income tax treatment as compensation and possible capital gains tax on the transaction.
457 plan funding
- Must be govt org or 501(c) tax-exempt org.
- Contribution limit $22,500 (2023).
- Tax on contributions and tax on account earnings are tax-deferred.
- Can Allow for roth contributions and in-plan rollovers to designated Roth accounts.
ESOP question and is it covered by ERISA”
- Qualified securities
- ESOP owns at least 30% of the total value of all outstanding stock.
- Qualified replacement securities are purchased by the seller within a 15 month period beginning three months before the sale date.
The difference between backwardation and contango.
Backwardation:
- Desirable for investors who are “net long”
- When future prices are lower than spot prices.
- Indicates short supply.
Contango:
- Occurs when future prices are higher than spot prices.
- Indicates immediate supply.
105b1 plans and what those plans stipulate for directors and officers.
- Pre-arranged trading plans for insiders and affiliates
- Specifies amount, price and date at which securities should be traded
- Allows trading during “blackout periods”
- May provide public with greater disclosure
There was one question on relative wealth measure.
- The higher the better
- Zero indicates little tax impact.
- Works in all kinds of markets.
- RWM is usually negative, but can be positive if realized losses and/or applicable deferred losses are included.
prospect theory
- Most individuals are more risk averse vs. pleasure seeking by a ratio of roughly 2:1.
- Ppl make decision based more on probabilities than potential outcomes.
- Asymetrical s-shaped curve.
They had a few questions on what would be most appropriate for family meetings according to the writings of Jaffe and Grubman.
1) Obtain agreement
2) Establish purpose and goals
3) Design collaboratively and create expectations
4) Clarify expectations and format
5) Obtain information and invite participants
6) Create a safe environment
There were a couple questions on sharp ratio where you had to calculate the sharp ratio and another question that you had to know the definition of Sharpe and standard deviation.
- Measures total risk (using standard deviation)
- The higher the ratio the better
- When compared to the Sortino Ratio, the Sharpe ratio is better used when analyzing portfolio with low volatility.
One question on a self settled trust.
- Provides modest credit protection
- Grantor places assets in irrevocable trust, but is also a discretionary bene.
There was a question on generation-skipping transfer tax.
- GST tax imposed at a flat 40% rate.
- Exemption in 2023 = $12,920,000
- Not portable between spouses
There was a question on DSUE. You were given a fact pattern and had to determine how much of the estate was taxable given portability of unused exemption.
- Stands for Deceased Spousal Unused Exclusion
- Allows for taxpayers to account for any DSUE amount received from a predeceased spouse, calculate the amount of DSUE to be transferred in the event of a portability election, and/or opt out of electing to transfer any DSUE amount to a surviving spouse.
Question on an exchange fund and what is it used for.
Values of IWI
9 items of the Code
Spend thrift trust
6166 installment election
Section 338 rules
zeroed out GRATs
Variable prepaid forwards
Rule 144
- Holding Period: One year if non reporting company, 6 months if reporting company
- Trading Volume: Number of shares sold during a 3-month period can’t exceed:
- The greater of 1% of outstanding shares of same class being
sold or if class is listed on stock exchange or quoted on
NASDAQ
- The greater of 1% or the average reported weekly trading
volume during the 4 weeks preceding the filing a notice of the
sale on Form 144 - Filing Notice with SEC: Must file notice with the SEC on Form 144 if sales involve more than 5000 shares or the aggregate dollar amount is greater than $50,000 in any 3-month period.
Stock option strategies
Diversification:
- Exercise and sell
Tax Minimization:
- AMT Planning
- Tandem exercise
- Option gifting
- Grantor CLT
Wealth Accumulation:
- Stock Swap
- Early exercise
-Late Exercise
NSO Gifting
- Can be made outright, to trust or to a FLP.
- Applies only to NSOs
- Shifts future appreciation out of the taxable estate.
- Donor remains responsible for income tax on spread at exercise.
Deductible “Above the line” when calculating AGI (self employed)
- retirement plan contributions
- qualified HSA contributions
- half of self-employment taxes due
- qualified health insurance premiums paid.
Deductible “Below the line” when calculating AGI (self employed)
- qualified medical expenses when itemizing deductions
- qualified charitable deductions that are paid personally (not through the business)
- qualified mortgage interest.
