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CFP Review: CCR > Overall Review > Flashcards

Overall Review Flashcards

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1
Q

PV Calculation

A

0 CFj
1x CFj
% I/YR

NPV

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2
Q

IRR Calculation (Real Rate of Return)

A

-x CFj
1x CFj
+(2x+y) CFj

IRR/YR

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3
Q

Calculate NPV

A

-x CFj
1x CFj
+(2x+y)
% I/YR

NPV

(+) is good
(-) is bad

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4
Q

Structured Settlement

A

No lump sum
Tax free payments
Voluntary agreement for injury

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5
Q

Compensatory Charges

A

Tax free payments (interest is taxable)

Discrimination is taxable (except for medical)

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6
Q

Punitive Damages

A

Taxable

wrongful death is tax free

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7
Q

Leading Indicators

A

Unemployment

Manufacturing orders

Private Housing Units

Stock Prices

Consumer expectations

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8
Q

Coincident Indicators

A

Personal Income

Industrial Production

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9
Q

Lagging Indicators

A

Unemployment Duration

Prime Rate

Loans Outstanding

Change in CPI

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10
Q

Business Cycle VS Indicators
(Recovery, Expansion, Peak)

A

Recovery: leading (up), coincident (down), lagging (down)

Expansion: leading (up), coincident (up), lagging (down)

Peak: leading (up), coincident (up), lagging (up)

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11
Q

Investment Advisor Registration with SEC

A

ADV

$150 fee

ADV part 1 & Schedule 1

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12
Q

Medicare Part A

A

65 and Older, or 2 years disabled

Hospital Coverage: 1-60 days (deductible 1), 61-90 (deductible 2), 91-120 days (deductible z)

Post hospital stay: 100 days skilled nursing home

Home care services

Hospice

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13
Q

Medicare Part B

A

Voluntary: financed through premiums

Deductible, Medicare pays 80%, no stop loss

Includes: doctor visits, preventative care, tests, radiology, mental, blood, therapy, non-administered drugs

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14
Q

Medicare Part D

A

50% Discounts on drugs

Must have A+ B

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15
Q

Taxation of LTC

(premiums & benefits)

A

Premiums paid for qualified LTC: deductible as itemized medical expenses

Deductibility Limits:
days 51-60 $1,690
61-70 $4,510

Subjects to 7.5% AGT Floor (not for SE)

Benefits are NOT taxable

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16
Q

Medicaid

A

New worth under $2,000
- 5 year look back rule
- Home equity up to $636,000

Offers: hospital, nursing facilities, physician, lab, x-ray, home health

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17
Q

Group Life Insurance Income Tax
(Implications/Calculations)

A

(Table 1 Rate) x (Coverage over $50k)= Y

(EE Contribution) x (all coverage) = X

Y - X = EE included annual income

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18
Q

Discriminatory Group Life Plans
(Key Employee Income Inclusion)

A

Key Employee includes greater of :
1. actual cost of insurance
2 cost by formula:

(Table 1 cost) x (overall coverage / 1000) x 12 months =
income to employee

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19
Q

FSA

A

No FICA or FUTA tax

NO LTC

Not HSA

Use it or loose it by 12/31

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20
Q

Bond Conversion Price (CP)

A

PAR / # of shares

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21
Q

Bond Conversion Value (CV)

A

(PAR / CP) x stock price

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22
Q

Unit Investment Trusts (UITs)

A

Unmanaged security portfolio / Passive

Self Liquidating: dividends distributed to unit holders

Units redeemed at NAV

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23
Q

SD Calculation

A

E+
E+
gold Sx,Sy

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24
Q

Mean Return Calculation

A

E+
E+
gold x,y

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25
Q

Geometric Return

A

Time Weighted Return

N= # of returns
I= ?
PV= -1
PMT = 0
FV= (1+x) x (1+y) X (1.etc..)

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26
Q

Current Yield

A

Annual coupon / bonds current price

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27
Q

Dividend Discount Model Shortcuts
(2 growth rates)

A
  1. if 1st rate < 2nd growth rate
    - use lower growth rate in model
    - choose next LOWEST answer
  2. if 1st growth rate > 2nd growth rate
    - use 2nd growth rate
    - choose next HIGHEST answer
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28
Q

ROE

A

EPS / Common Equity

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29
Q

Current Market Price

A

Earnings x P/E ratio

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30
Q

Dividend Payout Ratio

A

Common Dividend Paid / EPS

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31
Q

Stock’s Yield

A

Dividend / stocks closing price

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32
Q

Capital Market Line (CML)

A

MACRO

PORTFOLIO risk/return

STANDARD DEVIATION

tangent to efficient frontier

DIVERSIFIED portfolios expected return

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33
Q

Security Market Line (SML)

A

MICRO

Individual Security risk/return

Above SML: undervalued
Below SML: overvalued

BETA

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34
Q

Wash Sale Rule

A

30 days pre, 30 days post

$ loss added to cost basis of final purchase

No loss deduction

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35
Q

Dividend Timing

A

Purchase Date

Ex-Dividend Date

Date of Record

*buy before ex div date to receive div

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36
Q

Margin Required

A

= ((1 - initial margin) / (1 - maintenance margin)) x stock price

initial margin: 50%

maintenance margin: 25%

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37
Q

Maintenance Call

A

shares x new stock price = $

$ x maintenance margin = Equity Required

$ - loan = Actual Equity

Equity Required - Actual Required = Maintenance Call

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38
Q

Arbitrage Pricing Theory (APT)

A

Unexplained changes / Unanticipated Shifts

Not explained by risk/return

Inflation, industrial production, risk premium, structure of yield

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39
Q

Black - Scholes

A

Valuation of Calls/Puts

Variables: prices, exercise $, time, rate volatility

increase exercise price : decreased value
all others increase : increase value

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40
Q

Binominal Option Pricing

A

Valuation Model

Assume stock price has 2 values at expiration

Riskless portfolio / perfect hedge

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41
Q

Hobby

A

Hobby income is reportable

Business if: generates profit 3/5 years

Houses: 2/7 years

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42
Q

Schedule B, C, D, E

A

Schedule B: ordinary dividends, taxable interest

Schedule C: business income / losses

Schedule D: capital gains / losses

Schedule E: Real Estate

43
Q

Gross Income to Tax Due

A

GROSS INCOME
- for AGE deductions

AGI
- from AGI deduction

TAXABLE INCOME
x tax rate

TAX CALCULATION
- tax credits

TAX LIABILITY
- withholding penalties

TAX DUE

44
Q

Adjustments FOR AGI
(SIEAH K/S SE)

A

Student loan interest ($2,500 per year)
IRA contributions
Education expense ($4,000)
Alimony
HSA

Keogh / SEP

SE Tax (0.07065) and medical premiums 100%

45
Q

Adjustments FROM AGI
Itemized Deductions
(MMCCTI)

A

Medical expenses over 7.5% AGI
Mortgage Interest
Causality Losses
Charitable Deductions
Taxes ($10,000)
Investment Interest

46
Q

Medicare Taxes

A

under $200k wage: 1.45%

over $200k wage: 2.35%
plus 3.8% on investment income from LTCGs and non-qualified dividends

47
Q

Dependent Care Tax Credit

A

Under 13 years old

$3,000 for 1 child
$6,000 for 2+

times 20% for credit

EX:
- $6,000 x 20% = $1,200
- $3,000 x 20% = $600

48
Q

Child Tax Credit

A

$2,000 for each child under 17
- reduced $50 for each$1,000 over $400k
- up to $1,400

$500 Family Credit: dependent adults

49
Q

Adoption Credit

A

$14,890 pre child

50
Q

Installment Sales

A

Deferred gain for seller

Profit / Sale price = profit %

instilment payment x profit % = Gain

51
Q

Sole Proprietorship

A

Advantages:
- Keogh, SEP
- 100% medical plan deduction
- no legal formalities
- conduit of income and loss
- schedule C

Disadvantages:
- unlimited liability
- business dies with owner
- capital structure depends on owners assets

52
Q

Partnership

A

Advantages:
-Keogh, SEP
- 100% medical plan deduction
- conduit of income and loss
- agreement can be oral

Disadvantages:
- unlimited personal liability
- Dissolves upon death/bankruptcy
- capital structure is owners resource

53
Q

LLC

A

Partnership or Corporation

Can operate like a general partnership

20% income deduction if they have QBI with pass through entity

54
Q

C Corp

A

Separate tax entity
Double taxation:
1. distribution to owners
2. owners taxed income

Advantages:
- Unlimited investors
- dividend reduction (50%)
- limited liability
- continuity of life

Disadvantages:
- corporate formalities
- after tax dividends
- double taxation

55
Q

Dividend Received Deduction

A

US Corp invested in US Corp

0-20% ownership: 50% dividend deduction
20-80% ownership: 65% dividend deduction
80-100% ownership: 100% dividend deduction

56
Q

Section 1244 Qualified Small Stock

A

C or S Corp < $1mm market cap

Loss of $100k (joint): ordinary loss
Loss of $50k (single): ordinary loss

57
Q

Personal Service Corporation (PSC)

A

HALE:
- Health
- Accounting, Architects, Actors
- Law
- Engineers

Taxes at flat 21% rate

58
Q

S Corp

A

CONDUIT:
- 100 or less share holders (individuals, estate, trusts)
- single class of stock
- domestic Corp

Advantage:
- limited liability
- conduit
- basis is cash and direct loans (no bank)

Disadvantage:
- corporate formality
-sale of stock: limited eligibility

59
Q

Business Selection

A

PROFITABLE:
- C Corp
- PSC

LOSSES:

Riskless:
-Sole Proprietorship
- Partnership

Risky:
- S Corp
- LLC
- LP

60
Q

MARCS / Straight-Line
Depreciation %

A

MARCS:
- 5yr: 20%, 32%
- 7yr: 14.29%, 24.49%

Straight-Line:
- 5yr: 10%, 20%
- 7yr: 7.14%, 14.29%

61
Q

Realized Gain

A

(FMV acquired + boot) - Basis of property

62
Q

Recognized Gain

A

lessor of realized or boot received

63
Q

Substitute Basis

A

FMV acquired - (realized - recognized)

64
Q

Charitable Bargain Sales

A

(Sales price / FMV) x basis = adjusted basis

Sales price - adjusted basis = taxable gain

FMV - Price Paid = Gift

65
Q

Passive Activites

A

Does not materially participate

Passive losses only offset other passive income (schedule E)

Passive Activities:
1. Rentals
2. Business: non-material
- limited partnership
- partnership/S-Corp

66
Q

Public Traded Partnership (PTP)
(loss/income)

A

PTP Loss: NO NETTING

PTP income: portfolio income

67
Q

Non-Public Trade Partnership (PAL/PIG)
(loss/income)

A

PALs loss taken up to income from PIGs

68
Q

Rental vs Residence

A

Treated as residence if used: the greater of
1. 14 days
2. 10% of rental days

69
Q

Alimony Recapture

A

P1 + P2 - $37,500 =
or
P1 + P2 - 2P3 - $37,500 =

70
Q

SS Fully Insured

A

40 Qs of coverage

survivor and retirement benefits

71
Q

Taxation of SS benefits

A

Income plus 1/2 SS benefits
- income includes muni interest

50%, 85% SS taxed

Single: $25k, $34k

MFJ: $32k, $44k

72
Q

Ratio % Test

A

NHCEs / # HCEs = or > 70%

73
Q

Average Benefits Test

A

AB% NHCEs / AB % HCEs = or > 70%

74
Q

Minimum Participation
(50/40)

A

Lessor of:
50 employees
40% employees

75
Q

Top Heavy Plans

A

aggregate benefits allocated to KEY employees > 60%

76
Q

ADP / ACP Testing
(Employer Matching)

A

NHCE 0-2%, HCE times 2

NHCE 2-8%, HCE plus 2%

77
Q

Inherited IRA (Roth) Distributions

A

No bene: 5 yrs from owners death

Bene: 10 yrs from owners death

Spouse:
1. until deceased would have turned 72
2. Roll over to spousal IRA

78
Q

RMD Calculation & Penalty

A

Prior year balance/ this year age uniform table = RMD

50% penalty for amount under withdrawn

79
Q

Totten Trust

A

Recoverable trust in bank account

Depositor retains rights of withdrawal until death

Balance passes to beneficiary

80
Q

Gross Estate to Net Estate Tax

A

GROSS ESTATE
- expenses, admin, debts, taxes, causality

ADJUSTED GROSS ESTATE
- marital and charitable deduction

TAXABLE ESTATE
+ taxable gifts

TAX BASE
- tax deduction ($12,060,000)
X remainder at 40%

TENTATIVE TAX
- gift taxes paid

NET ESTATE TAX

81
Q

3 Year Rule
(added back to GE)

A

Made within 3 years of death

  1. transfers of Life Insurance
  2. Gift Tax Paid (not GSTT)
82
Q

Survivorship Annuties

A

Included in Gross Estate

Right to lumpsum: annuity full value

Periodic Payments: PV of future payments

83
Q

Powers vs Gift & Estate Tax

A

Special/Ascertainable (HEMS): No Gift or Estate Tax

General Power no 5/5: Gift and Estate Tax

General Power with5/5: Estate Tax only

84
Q

Gift of Future Interest

A

Future Interest does not count for the $16k annual exclusion (taxable gain in full)

Exceptions:
- to trust for minor
- 2503 (c)
- Crummy Trust
-529 Plans

85
Q

Gifts to Noncitizen Spouse

A

$164,000 exclusion

No marital gift exclusion

86
Q

Gift Tax Paid by Donor

A

For appreciated gift, tax increases basis

87
Q

Gifts with Debt

A

FMV - Debt = Gift

Debt - Basis = Capital Gain

Basis + Gain = Donee Basis

88
Q

Medicaid Planning

A

Income and Assets ($2,000) under limits

Prohibited if given way money within 5 years of incurring nursing home expenses

$ given away / cost of nursing home monthly = # of months Medicaid will NOT cover

89
Q

A Trusts

A

2nd to die controls property

Marital Trusts
Power of Appointment
Spousal Trust

90
Q

B Trusts

A

1st spouse to die controls property
Fully Fill

Non-marital trust
Credit Shelter Trust
Unified Credit Trust
Family trust
Bypass Trust
Dynasty Trust

91
Q

C Trusts

A

1st to die controls property

QTIP
Current Interest Trust

92
Q

Gifts to Minors
(Future vs Present Interest)

A

FUTURE: 2503(b)

PRESENT:
-2503(c)
- 529
Subject to Kiddie tax:
- UGMA
-UTMA

93
Q

2053(b) vs 2053 (c)

A

2053(b)
- Investment: income producing
- Transferred: mandatory income distribution, corpus no mandatory
- Gift Tax: future interest, income is present interest
- Taxation: subject to kiddie tax if under 24

2053(c)
- Investment: any
- Transferred: principal at 21 or sooner
- Gift Tax: present interest
- Taxation: trust tax rules

94
Q

Sprinkling Provision

A

trustee has power with DISCRETION to distribute income to bene

95
Q

Discretionary Provision

A

only as much income or principal to bene as trustee SEES FIT

96
Q

Support Trust

A

deems necessary for support or education of bene

97
Q

Charitable Transfer
(income to donor)

A

Trusts: 5%, any charity
- CRAT: fixed payment, no additions
- CRUT: variable payments, additions allowed

Specific Charity:
- Pooled Income: charity controlled, variable payments, additions allowed
- Charitable Gift Annuity: fixed payments, no additions

98
Q

Charitable Transfer
(income to charity)

A

Trusts: 0%, income/estate tax deduction
- CLAT/CLUT

Private Foundation: 5%

99
Q

Donee Pays Gift Tax Formula

A

exhaust $12,060,000

  1. amount over $16k x 40% = Y
  2. Y / 1.40 = $ gift tax paid by donee
  3. amount over $16k - $ gift tax paid by donee = Adjusted Gift
100
Q

Intra-Family & Business Transfers

A

Owner needs income (PIGs)
- Private Annuity
- Installment Sale
- GRAT/GRUT
- Self Cancelling Installment Note

-GRIT: no family members

Income to Family:
- Partnership / S Corp
- FLP
- Gift Leaseback
- QPRT

101
Q

Direct Skip

A

Transferor pays gift tax

102
Q

Taxable Terminations

A

termination of nonskip person interest, result in skip person receiving income/principal

  • Gift of future interest (no $16k)
  • Trustee pays GSTT
103
Q

Taxable Distributions

A

distribution out of a trust to skip person

  • Future interest (no $16k)
  • Transferee pays GSTT
104
Q

Post Mortem Elections

A

ESTATE LIQUIDITY:
- Section 303 Stock Redemption
- Installment Payment of Estate Taxes (6166)

ESTATE TAX REDUCTION
- Special Use Valuation (2032 A)

CFP Review: CCR (3 decks)

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