QBank TakeAways Flashcards
CPF Numbers To Remeber
5% Tax Penalty
Per month penalty for Failure to File: 5% of the unpaid taxes for each month or part of a month that a tax return is late
25% Tax Penalty
Max penalty for Failure to File by 4/15
: 5% of the unpaid taxes for each month or part of a month that a tax return is late up to a maximum of 25%.
102% Admin Cost
Max amount of COBRA cost to beneficiary of the continuation coverage may not exceed:
25% (Retirement)
Penalty applied to shortfall amount that was NOT distributed per RMD
25,000 Allowable Loss
Real Estate loss deduction for active participant
Full $25K allowed if MAGI is below $100K
Phaseout for MAGI between $100K - $150K
[(150 - MAGI)/$50K] x 25K
$100K - %150 K Phaseout
Real Estate loss deduction for active participant
Full $25K allowed if MAGI is below $100K
Phaseout for MAGI between $100K - $150K
[(150 - MAGI)/$50K] x 25K
500K (MFJ) / 250K (Single) Allowable Exclusion
Sale of primary residence (sec 121)
Allowable Exclusion - $250K (If stayed for 2 years)
Prorated Exclusion for less than 2 years - (# of months stayed / 24) X 250K
Usage & Ownership Test for Sec 121
Both spouses must meet the usage test AND One spouse must meet ownership test
403(b) Investment Options
Can invest in Sponsored Mutual Funds or Annuities
SIMPLE IRA Eligibility - Earning Requirements
Must have earned $5K in last two years and reasonably can expect to earn $5K in current year
Current Bond Yield Formula
Annual Coupon Payment / Current Bond Price
Age Requirements for Kiddie Tax
under age 19 or
under age 24 if full-time student
Agent
One individual known as Agent who can action behalf of another under a written power of attorney
A written agreement that allows one individual, known as the agent to act on behalf of another
Power of Attorney
A-Trust Features
Qualifies for Marital Deduction = Yes
Surviving spouse has power of attorney = Yes
Includes in Decedent’s Estates = NO
Included in the Surviving Spouses Estates = Yes
DNI Taxation
With DNI, bene will be responsible for taxes on LESSER of DNI or amount required to be distributed according to trust document.
How is income from 2503(b) or 2503(c) trust taxed?
Income from minor’s trust is taxed UNDER KIDDIE TAX rules
Crummey Power Withdrawal Amount Limit
Lesser of :
Annual exclusion
Annual contribution made to the trust
The greater of $5000 or 5% of the amount transferred into the trust
QPRT Basis
Heirs acquire the carry-over basis (original basis of the grantor) + Any improvements made
AVD Election
Who? Executor makes the election.
What? A valuation date that is set 6-months from the date of death.
When? Selected within one year of estate tax return filing, including extensions.
Where? AVD election is made on Form 706 and is IRREVOCABLE
Why? To receive a lower valuation of the estate which, in turn, reduces potential taxation.
AVD Exception
If AVD election is made, all assets MUST be valued as of AVD.
EXCEPTION: Depreciating assets - cars, patents, copyright musical scores, intellectual property
TIP Estate Tax Consequences
RECEIVING Spouse (donee) Will NOT include property in their gross estate at death
GIFTING spouse (donor) will REMOVE the property from their estate
TIP Gift Tax Consequences
TIP = GIFT
DONOR spouse = CANNOT gift-split
DONOR spouse = CANNOT take marital deduction
DONOR spouse = CAN take annual exclusion for present interest gift
Which properties are NOT includable in the gross estate?
Gifted property within 3 year of the death of the donor
UNLESS - donor has RETAINED interest in life estate, re-visionary interests or revocable trust and life insurance policies owned by the insured
What is the amount of tax due for assets transferred into QTIP trust through QTIP election?
no tax due as assets transferred via QTIP election are considered marital deductions which are unlimited.
What does grantor of QPRT receive in exchange for transferring the property into the trust?
access to the property and possession of the property
3 Types of generation-skipping transfers (GST)
Taxable Distributions
Taxable Termination
DIRECT skip
GST - Taxable Distributions
Any distribution of income or corpus from a trust to a skip person that is NOT subject to estate or gift tax.
GST - Taxable Termination
The termination by death, the lapse of time, release of power, or otherwise of an interest in property held in a trust resulting in skip persons holding all the interests in the trust
GST - Direct Skip
A transfer subject to an estate or gift tax made to a skip person.
Tax-exempt Gifts
Gift made DIRECTLY to educational institution for TUITION ONLY
Gift made DIRECTLY to a medical provider/institution for an individual’s medical expenses
USA Patriot Act 2001
Require BDs to have internal policies for Know your customer;
eliminate funding of terrorism by money laundering
Gramm-Leach Bliey Act of 1999
Keep client information private; repealed Glass-Steagall Act of 1933
Insider Trading and Sec Fund Enforcement Act of 1988
Defined what is considered insider trading;
stiffed penalties for insider trading activities
Sec 303 Redemption
Allows for portion of decedent shareholder’s stock to be bought back by the corporation as a sale or an exchange instead of dividend
The redeemed stock MUST be included in the decedent’s gross estate.
decedent shareholder’s stock must be worth more than 35% of decedent’s gross estate (after deductible expenses)
Section 2032A - Reduction
executor may elect to value qualifying real property (farm or closely held business real property) based on its actual special use valuation (limit to $1,390,000) rather than its highest and best use.
AKA: REDUCE estate tax by LOWERING the value of real property used in business by as much as $1.39M as indexed.
Section 2032A - Reduction Reqs
Reqs:
- property in qualified as on DOD
- qualified property = at least 50% of decedent’s gross estate
- at least 25% of gross estate (less expenses) MUST be qualified farm or closely held business real property
- qualified property must pass to qualified heir
- property must have been owned by 5 years out of last 8 years ending on DOD
- Decedent or family member of decent must be an ACTIVE participant in those 5 years
Section 2032A - Reduction Amount
in 2024 is $1,390,000, as indexed
TIP Exceptions
Marital deductions are NOT available for TIP
Exception: Marital deductions are allowed ONLY IF
(1) Spouse is given a life estate in trust and is given a general power of appointment over the trust corpus.
(2) Q-TIP Election is made by donor or executor
Section 6166 - What and Qualifications`
created to alleviate an estate’s liquidity problems; can defer estate tax payments if qualify
An Estate Qualifies, If:
1) value of decedent’s interest in the closely held business EXCEEDS 35% of the ADJUSTED GROSS ESTATE
2) Decedent was US Citizen or Resident at DOD
3) Election was made timely with full and complete filing of fed estate tax return
Section 6166 - Payment options
the estate pays a reduced rate of interest on the portion of estate tax deferred
may elect to pay the estate tax due on the decedent’s interest in a closely held business in up to 10 equal, annual installments.
1st annual payments MUST be made with 5 years after the due date of the Federal estate tax return (i.e., Form 706), which is generally 9 months from the date of death.
when is Section 6166 a useful tool?
an estate is unable to pay tax without selling assets at a loss, and
when the business or estate can earn a greater after-tax rate of return than it spends in interest for the deferral privilege.
Taxable gifts and gift tax
Taxable Gift = FMV of property or Cash value of the gift - $18K Annual Exclusion
Gift Tax = 40%
Total Gift Tax Liability = Taxable Gift X Gift Tax
Basis & HPR of appreciated property fift
DONEE Basis = Donor’s basis
DONEE HRP = Donor’s HPR
Basis & HPR of loss property gift
IF subsequently sold at a loss (Less than the FMV at the time of the gift)
DONEE basis = FMV at the time of the gift
DONEE HPR = HPR begins at time of the gift
IF subsequently sold between FMV of gift and Donor’s Basis (in between) = No gain or loss to Donee
IF subsequently sold between ABOVE FMV of gift:
Donee’s basis = donor’s basis
Donne’s HRP = donor’s HPR
When should Per Capita be used as method of asset transfer
when assets are to be distributed EVENLY amongst ALL survivors.
Distribution is based on the surviving family members.
“BY HEAD” or “according to the # of individuals”
When should Per Stripe be used as method of asset transfer
when a share of the decedent’s assets is to be transferred to a DECEASED BENE’S CHILDREN and SPLIT EVENLY.
Distribution follows the family tree.
Defined as either “by the trunk,” “by the roots,” or “by right of representation.”
When should Per Stripe BY GENERATION be used as method of asset transfer
Used when the 2nd generation is set to receive their specified % share, with all heirs in the 3rd generation receiving an evenly-split % of the remainder.
Will Substitues
Will substitutes allow assets to avoid the probate process.
The three types of will substitutes are:
Trusts (Funded revocable trusts, irrevocable trusts, and property in a trust).
Operation of Law (JTWROS or Tenancy by the Entirety, joint banking accounts, POD/TOD accounts, life estate).
Contract (Named beneficiaries on life insurance, pension plans, IRAs, annuities)
Probate and property transfer by pour-over will
Property transferred by a pour-over will into a trust IS SUBJECT TO PROBATE
What are the advantages of titling an asset as tenancy in common
Control of property transfer through a will
Splitting income among owners
When should CLAT be used?
when you can’t add additional assets
when you want to maximize value of asset transferred to the non-charitable bene
When interest rates are low - lower annuity payments mean greater value of trust corpus
springing power of attorney
A springing power of attorney does not become operative until the principal becomes legally incapacitated.
However, the principal’s state of incapacitation must be confirmed by a medical professional
Grantor & Benes
Grantor: A person who transfers property to and dictates the terms of a trust.
Bene: A party that will receive the benefit of the use of the trust property and/or income.
Trustee Features
Serves as a fiduciary (for the benefit of benes)
to whom property is transferred by the grantor and receives legal title to the property placed in the trust.
Manages, distributes, and accumulates income + principal.
Must follow a formal written agreement (i.e., terms of the trust) for the benefit of the benes
Complex Trust
Are NOT required to make distributions (they can accumulate income)
May have a charitable beneficiary
May distribute principal during the tax year
Have a personal exemption of $100 (2024)
Advantages of JTWROS
Ensure that the property automatically passes to a specific individual upon the owner’s death.
Avoid probate.
Reduce administrative costs and attorney’s fees.
Minimize income tax liability.
What are the gift tax return filing requirements for gift splitting?
The donor spouse files the gift tax return if split gifts are less than the annual exclusion; the other spouse shows “consent” on Form 709.
Bond price sensitivity to changes in the interest rates
Bonds with SHORTER maturity and HIGHER coupons are LESS sensitive to interest rate changes
Factors that influence an investor’s capacity for risk are?
Time Horizon
Liquidity Needs
Total Investable Assets
The probability of a return falling within +/- 1 SD of the average is
68%
The probability of a return falling within +/- 2 SD of the average is
95%
The probability of a return falling within +/- 3 SD of the average is
99%
When you want to profit from appreciation of a given stock AND you have no need for current income, what options strategy should be used?
Buy a call
(Right to buy stocks at an EP and you want to buy a low EP < MP = bullish)
Examples of higher risk investments
Common and preferred stock
Junk bonds
Options, futures and forwards
Small-cap and growth-oriented funds
What strategy to use if you are subject to AMT in the current tax year
Accelerate income into the AMT year
Defer tax deductions until a regular tax year
items of income in respect to decedent (IRD)
Defered Annuity
Immediate Annuity Period Income
ER Qualified Retirement Plans - 401K, TSA, Company Pension Plans
IRAs
EE Bonds
Salary, Bonus, Commissions, Rental income
Lottery Winnings, any other income
(Capital Assets - bank accounts, CDs, stocks, bonds, mutual funds, real estate and business assets are not items of IRD)
ADL for qualified LTCi Claim qualification
BED (Bathing, Eating, Dressing)
COT (Continence, On-off the Toliet, Transfering)
(Walking is NOT an qualified ADL)
If ____ % of REIT Income is distributed to sharedholders, that income is tax free to the REIT
90%
At least _____ % of REIT’s assets and income must be derived from real estate equity or mortgages
75%
Which type of life insurance policy provides cash value subaccounts NOT subject to insurance company’s creditors in the event of the insurance company’s bankcrupy?
Variable Universal Life Insurance Policy
What tools Fed uses to manipulate the Money Supply?
Discount Rate
Reserve Reqs
Open Market Activities (Buy/Sell Securities)
Statistical measure that is used to quantify NON-DIVERSIFIABLE risk
Beta (NON-DIVERSIFIABLE = SYSTEMATIC)
(Std Deviation is used to measure diversifiable riks)
Avg tax rate is always _______ than marginal tax rate
LOWER Than
IRA Distribution Form & Partial Withdrawl from Annuity
1099-R
Minimum vesting schedule for cash balance plan
3-yr cliff
28% (re: mortgage)
PITI costs must be less than or equal to 28% of gross income
Which ER sponsored retirement plans are covered by PBGC?
Cash Balance Pension Plan
Traditional Defined Benefit Pension Plan
(Only DB Plans are covered by PBGC)
Accounts that CANNOT pay for NON-Tuition K-12 expenses
529 (upto $10K in TUITION expenses for K-12 students can be distributed from 529. NON-Tuition K-12 expenses paid from 529 account are NOT eligible for preferential tax treatment)
These accounts CAN pay for non-tution K-12 expenses: Coverdell, UGMA, UTMA
Max Period for RMD for inherited traditional IRA
For anyone above 21, End of 10 yr following decedent’s death
______ the maturity of a bond and ______ the coupon, the LESSER the sensitivity of the bond’s price to interet rate changes
SHORTER the maturity and HIGHER the coupon, the LESSER the sensitivity of the bond’s price to interest rate changes
Measure of Risk that includes SD
CML (Capital Market Line) (SD = total risk)
(SML, CAPM, Treynor Ratio use Beta as mesure of risk)
IRS Section that priovide tax-free exchange of life insurance and aunnity contracts
Section 1035
(Section 1031 allow to deffer recognized gains for real business property exchange)
IRS Section that priovide tax-free exchange of life insurance and aunnity contracts
Section 1035
(Section 1031 allow to deffer recognized gains for real business property exchange)
How much of the Traditional IRA Contribution is deductible when 401K contribution is maxed for the year?
If you are an active participant in an employer-sponsored retirement plan, IRA contribution deduction depends on the MAGI Phaseout
Section 83(b) - Basics
Generally, restricted stock is taxed as compensation income to the recipient based on the value of the stock when it vests to the recipient.
Section 83(b) election allows the recipient to pay taxes at the time of the grant on the value of the stock at the time of the grant.
Section 83(b) Advantages
Paying taxes on lower evaluation is beneficial if the stock is expected to increase significantly prior to becoming vested.
Making the Section 83(b) election and paying taxes at the time of the grant also establishes the holding period for tax purposes in the future sale of the stock.
