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My Cards > Things I Need To Know > Flashcards

Things I Need To Know Flashcards

1
Q

Charitable Transfers - giving income to bens first

A
  • CRAT / CRUT (5%)
  • Pooled Inc (PIF)
  • Charitable Gift AN
    r - really nice giving to kids first
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2
Q

Charitable Transfers - giving to charity first

A
  • CLAT / CLUT (5%)
  • Private Foundations (5%)
    L -losers giving to charity before family
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3
Q

Main difference between CRAT / CRUT

A

CRAT
- no additions
- fixed pymts

CRUT
- additions allowed
- pymts variable

Both are payable to any charity
10% ending value

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4
Q

Pooled Income Fund

A
  • trust fund operated by charity
  • commingled with other contrbtns
  • additions allowed
  • payable to 1 charity
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5
Q

Charitable Gift Annuity

A
  • no additions
  • fixed lifetime income
  • 1 charity rcvs now
  • charitable deduction based on gift less AN
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6
Q

Main point of CRUT / CRAT

A

Income to ben; remainder to charity
Why? inc tax deduction for PV of the presumed remainder i

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7
Q

Main point of CLAT / CLUT

A

Income to charity 1st then to ben
Why? Reduces estate tax but only counts if established at death

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8
Q

Private Foundation
AKA: Family Foundation
(how the wealthy really give away their money)

A
  • 30% income tax deduction
  • payable to charity or individual
  • carry on indefinitely
  • must give away 5% to charity every year
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9
Q

Donor Advised Fund

A
  • public charity sets up a sub-account or fund in the donor’s name
  • donor can make recommendations
  • poor man’s private foundation
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10
Q

Intrafamily Transfer where the donor needs income

A

PIGS need income
- Private Annuity
- Installment Sale
- GRAT / GRUT
- Self-canceling installment note (SCIN)
____________________
GRIT - no family (retained interest trust)

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11
Q

Intrafamily Transfer where donor DOES NOT need income

A
  • partnership / S Corp
  • Family LP
  • Gift Leaseback
  • Q Personal Residence Trust
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12
Q

Installment Sale

A
  • PV of remaining pymts included in estate
  • pprty secured
  • gain in capital (do not use if 1245 dep asset)
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13
Q

Self-Canceling Installment Note

A
  • no value in estate
  • gain is capital
  • assets can be depreciated
  • i can be deducted
  • higher payout than installment
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14
Q

Private Annuity

A
  • sale of ppty for periodic pymts
  • no value in estate
  • pprty exchanged for a promise
  • all gain taxed in yr AN established
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15
Q

GRAT / GRUT

A
  • irrevocable trusts
  • @end - distributed to remainder person
  • value of gift is discounted
  • owner must outlive terms or brought back to estate
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16
Q

Difference between GRAT / GRUT?

A

in a GRUT the payout is % (fixed) is based on the assets revalued every year

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17
Q

Family Partnerships / S Corp (Gift Sharing)

A
  • family members rcv conduit income to reduce estate
  • ineffective if child under 24 (kiddie tax)
  • Biz must be capital sensitive
  • not available is service related
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18
Q

Family LP

A
  • to reduce estate
  • GP maintains control
  • “valuation discounts” to lower gift tax
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19
Q

Gift Leaseback

A
  • gift of fully depreciated pprty
  • lease pymts are biz ded; income to family member
  • <24 - not good! K-Tx
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20
Q

Qual Personal Residence Trust

A

irrevocable transfer of personal residence
- @ end - residence eliminated from estate
- value of gift discounted
- owner must outlive term

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21
Q

GSTT - Generation Skipping Transfer

A
  • flat tax 40%
  • Skip person 2 generations younger
    or unrelated 37.5 yrs younger
  • same $$ as Gift tax
    ($12.92 MM / $17k annual)
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22
Q

Alternative Valuation Date (AVD)

A
  • FMV 6 mos after
  • must cause a reduction in total value of G estate
  • fed tax liability must be reduced as a result
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23
Q

Disclaimer Trust (simple)

A

spouse can disclaim pprty and still receive income

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24
Q

Unsystematic Risk

A

= Total Risk
Includes:
- biz risk - bad mgmt
- financial risk - heavy debt
Risk you can undo w/diversification

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25
Q

Systematic Risk

A

AKA: nondiversifiable risk
CANNOT AVOID
P.R.I.M.E.
Could be called Beta

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26
Q

Point on CDs

A

Do not have i rate risk

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27
Q

HPR for Bonds

A

[Bond’s Mkt Price + Cpn - Purchase Price]
divided by Purchase Price

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28
Q

Current Yield for Bonds

A

Annual i in $$
divided by
Mkt Price

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29
Q

Selling Price of Bond

A

Annual i in $$
divided by
Current Yield

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30
Q

Phanton Income

A
  • must pay taxes even when not received
  • remember it adds to basis!!!!!!
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31
Q

Tax on T-Bills, Notes and bonds

A

No state or local income tax on interest
FYI: RIP for risks (no default risk)

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32
Q

Difference between EE bonds and I bonds?

A

Phantom income and inflation on I

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33
Q

Risk on Mtg Backed securities?

A

Anything with an “F” in it you could technically lose your money but won’t
FNMA, FHLMC, FHA
*GNMA backed by gov’t

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34
Q

DRIP

A

Risks assoc with Corp and Muni bonds

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35
Q

Intrinsic Value on Real Estate (Apt Complex)

A

Gross Rentals
- nonrental income
= Potential Gross Inc
- vacancy & collection losses
- operating expenses
= NOI (CF)

THEN divide by capitalization rate
for IV of pprty

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36
Q

Intrinsic Value of Option

A
  • minimum price will command as an option
    IV = MP - EP
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37
Q

Exercise Price of Option

A

AKA Strike Price
- price at which stock can be B/S

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38
Q

Premium of Option

A
  • cost of the option
  • Buyes pay prems to sellers
  • As approaches expiration, MP gets close to IV
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39
Q

Time Premium of an option

A

Amount by which MP > IV

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40
Q

In the Money

A

IV is positive

MP - EP = +

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41
Q

Out of the Money

A

Cannot be negative but if the answer is negative must be = 0

MP - EP = - or 0

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42
Q

Put Options

A

Think: Put Down - bearish
- holder right to sell
- bearish
- writer = bullish; wants prem $ therefore believe won’t be exercised

43
Q

Protective Put

A

Owns stock
- put acts as insurance against a decline
- long position

44
Q

Short Selling

A
  • doesn’t own but thinks it will decline
  • must be made on a margin account
  • net proceeds + margin held by broker
  • no time limit
  • dividends must be covered by short seller
45
Q

Futures - Long

A

If there was too little corn planted and you want to buy in the future, then you take a long position
- worried about an increase in cost

46
Q

Futures - Short

A

You want to sell a commodity in the future bc there is an excess amount now then you take a short position
- worried about a decrease in value

47
Q

Collectibles

A

Fine arts & Coins, etc…
- Taxed @ 28%

48
Q

Zero Coupons Bonds

A
  • Phantom Income
  • least likely to reduce current income tax
  • least likely to increase cap gains
  • carry D = to their maturities; bc no i fluctuate more than Cpn bonds w/same maturity
49
Q

Private Placement

A

Reg D
- Remember 1-2-3 test
- $1MM NW (not home); $200k S; $300k J
- Non-accredited 35 sophisticated investors

50
Q

Covariance

A

COV ij = Corr Coeff x SD x SD

  • measures extent to which price movements are related to each other
51
Q

Correlation Coefficient

A

Covariance
divided by (SD x SD)

+ 1 moves together - perfectly correlated - MAX RISK
0.00 - 1.0 then risk of port < risk of individual assets
- 1 moves opposite - negatively correlated - risk eliminated

52
Q

Coefficient of Variation (CV)

A
  • risk per unit of expected return - SD may not show which one is riskier
  • Which one is riskier?? the one with higher CV
             SD divided by Return = CV
53
Q

Calculate Avg and SD on calculator

A

E+ then gold 7 (x,y) gold 8 (Sx,Sy)

54
Q

Standard Deviation

A

measures variability of returns used in a nondiversified portfolio and is a measure of total risk

1 deviation = 68% of the time
2 = 95%
3 = 98%

55
Q

Beta

A

Measures volatility or returns in a diversified portfolio and is a measure of systematic risk
B = 1 moves with mkt
B > 1 stocks return fluctuates > mkt’s
B < 1 Stock’s return fluctuates < Mkt’s return fluctuates

Formula = COV divided by Mkt SD squared (or)
= CC x SD of stock divided by SD m

56
Q

Real Rate

A

Nominal Rate adjusted for inflation

= [(1 + ROR / 1 + inf)-1] x 100

57
Q

Geometric Mean

A

Time-weighted Return to evaluate perf of port mgr

Multiply amount up and down for time periods (then)
use that for FV, with -1 as PV, time = N, then solve for i

58
Q

Dollar Weighted Return

A

Factors CFs - absolute $ amounts

changes in total $ value treating additions and w/ds of capital as part of return along w/G/Ls

59
Q

Time Weighted factors?

A

Factors % - manager comparisons

60
Q

HPR (Stock)

A

Appreciation
divided by
Out of Pocket cost

Must separate out the margin amount and i

61
Q

Immunization

A
  • passive investment strategy
  • immunized if avg D of the bonds = pre-selected time horizon
62
Q

Efficient Frontier (Markowitz)

A
  • on the curve = optimal
  • inefficient but feasible if below the curve
  • unattainable if above the curve
63
Q

Indifference Curve

A

to select the expected return-risk that will satisfy an investor’s personal preference
- Steep Curve - high risk
- Flat Curve - risk averse

64
Q

Capital Mkt Line

A
  • Intersection of CML = Rf Risk free
  • Point B = optimal risky port;
    What happens if port moves from point of tangency to R2? Sell risky asset and buy T-bills
65
Q

Security Mkt Line

A

risk and return for one asset
r = Rf + (Erm - Rf)B

66
Q

Mkt Risk Premium

A

= (Erm - Rf)

Part of CAPM

67
Q

Stock Risk Prem

A

= (Erm - Rf)B

68
Q

Efficient Market Hypothesis

A

Strong - x fund or tech; price already fully reflects all info

Semi - x fund or tech; public info priced in; only insider changes

Weak - x tech; fundamentals may produce superior results

69
Q

R Squared

A
  1. Look for high R2 = 60+ then diversified portfolio
  2. Look for highest possible alpha, if not given, look for highest Treynor
70
Q

Jensen (alpha) / Treynor Concept

A
  • Risk measured in terms of B
  • Systematic risk only
    R2 60+ then diversified
    <60 highest alpha or treynor
71
Q

Sharpe Concept

A
  • risk measured in SD
  • systematic risk and unsystematic risk
  • Look for lowest R2 - non-diversified port
  • Look for highest Sharpe
    Bad Boy - no Beta here
72
Q

X Div Date

A

to be a holder of record, must purchase before ex-div date.
Purchase - Ed-Div - Record
(Bus Days only!!)

73
Q

Margin Requirement

A

[(1 + margin) / (1+maint margin)] x Purchase price

74
Q

Active Strategies

A
  • Tactical asset allocation
  • Dow Theory
75
Q

IRC

A

Primary source of all tax law

76
Q

Treasury Regs

A

a source of tax law

77
Q

Revenue rulings & revenue procedures

A

admin interpretation/ may be cited as precedent

78
Q

Congressional Committee Reports

A

indicate intent of congress
- may not be cited as precedent

79
Q

Private Letter Rulings

A

applies to specific taxpayer and situation

80
Q

Judicial Sources

A

Court decision interpret law/facts

81
Q

Frivolous Return Penalty

A

$5000

82
Q

Negligence

A

20% penalty
of portion underpaid

83
Q

Civil Fraud

A

75% penalty of underpayment attributed to fraud

84
Q

Failure to File

A

5% of the tax due per month with a max of 25%

85
Q

Failure to Pay

A

.5% per month; max 25% (pay-point .5%)

86
Q

Estimated Tax Due

A

90% of Current
(or)
100% of prior
(110% if exceeded $150k)

87
Q

Gross Income Inclusions

A
  • Schedule B - txbl int & Ord Income
  • Schedule C - biz inc/loss
  • Schedule D - CG/L
  • Alimony rcvd (pre-19)
  • IRA distributions/pensions/ ANs/punitive dmgs
  • Sched E - real estate
  • Unemplmt Inc
  • Taxable SS portion
88
Q

Adjustments for AGI

A

“ABOVE THE LINE”
Main Adjustments:
- Keogh/SEP/IRA Cntrbtns
- 1/2 Self-Emplymt Tx (.07065)
- Alimony paid (pre-19)
- Self-emplmt Health Ins Prem

– $2500 student loan i
– HSA cntrbtns
– penalty for early w/d
– moving exps (military only)

89
Q

Tax Credits (after taxable income computed)

A
90
Q

Standard Deductions

A
  • Reduces AGI
    -Extra Stand Ded for 65 or older and blind $1500 (MFJ) $1850 (S)
    “BELOW THE LINE”
91
Q

Itemized Deductions (Schedule A)

A

“BELOW THE LINE”
- Medical, Dental, & LTC (7.5% limited to)
- casualty losses (fed disaster)
- real estate taxes*
- st/local/sales tx*
(*limited to $10,000)
- home mtg i (max $750k loan)
- charitable gifts
- inv i exp (only up to earnings)

92
Q

Investment Interest Deduction

A

ie: margin interest
- limited to net investment income
- Schedule A
- Includes:
– i, divs, royalties, ST gains
– LTCG/L can be used if taxpayer does not used reduced rates

93
Q

Casualty and Theft Losses

A
  • must be from fed declared “disaster”
  • only unreimbursed loss deductible
  • timely ins claim required
    _____________________
    Calculation:
    < of basis or FMV
  • less ins coverage
  • less $100
  • less 10% of AGI
    = deductible amount
94
Q

Home Office Deduction

A
  • must prove area of use and on a regular basis
  • must not be any other location of biz
  • Schedule C / net business income only
  • employee option repealed
95
Q

Meals & Entertainment

A
  • Meals only deducted if bix conducted, txpyr present, and not “lavish & extravagant”
  • office parties (for other than HCE) still dedtble
  • biz meals for conv of emplyr 50%
  • meals for emplyees while traveling 50%
  • corporation can still pay, just cannot deduct
96
Q

Personal and Dependency Deductions

A

SUSPENDED

97
Q

Kiddie Tax (Unearned Income)

A

Amount:
1st - $1250 @ 0
2nd - $1250 @ 10
Above $2500 - @ parent’s

For Whom:
- All net unearned income for a child who is 24 or less and has one parent alive is taxed @ parent’s rate
- Student’s less than 24 can use above deduction

98
Q

Calculation for Earned and Unearned Income for a Child

A

Standard deduction is the greater of $1250 (or) earned income + $400, but no more than the single person standard deduction

99
Q

Activities Subject to Self-Employment Tax
(in addition to SE Income)

A
  • Real estate income or rents paid
  • distributive share of income or loss of a limited partner
  • wages from an S Corp (FICA Wages)
  • k-1 from an S Corp
100
Q

Self-Employment Income

A
  • “NET” Schedule C income
  • GP income (K-1)
  • Board of Directors fees
  • PT Earnings 1099
101
Q

Calculation for SE Tax

A

Shortcut: total of income x .1413

Hint: taxable wage base should not exceed $160,200 - amounts above this are only subject to Medicare tax. If you got a total higher than this you did something wrong

102
Q

FICA Tax
(Fed Ins Contribution Act)

A

Employee and Employer each pay (6.2% + 1.45%) 15.3 up to W-2 earnings of $160,200

After that, each pays just Medicare tax of 1.45% or a total of 2.9% (unlimited)

FICA is SS & Medicare - SS just has a cap, the medicare portion does not

103
Q

Credit for Child and Dependent Care Expenses (until 13)

A
  • nonrefundable
  • $3000 limit for one, $6k per family
    USE 20% OF THE ALLOWABLE CREDIT ON THE EXAM
104
Q

Child Tax Credit

A

$2000 for each qualifying child UNDER AGE 17
Phaseout - $400k MFJ / $200k S

  • up to $1600 per child is a refundable tax credit
  • $500 non-refundable credit for other dependents (not children)

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