BIF Review Practice Quiz - All Questions Flashcards
What is the earliest age at which a worker may claim Social Security retirement benefits?
* 67
* 60
* 65
* 62
62
* Age 62 is the earliest age at which a worker may claim Social Security retirement benefits. Benefits will be reduced, however, if claimed at age 62 as opposed to FRA.
Calculate the value of Samantha’s estate, assuming she passed away on 1/21/2022 and that her personal representative made an AVD election.
1/21/2022 7/21/2022
Primary Residence $400,000 $360,000
Investment Portfolio $100,000 $125,000
Automobile $35,000 $31,500
Vintage Guitar $105,000 $200,000
Intellectual Property $55,000 $75,000
* $791,500
* $651,500
* $775,000
* $795,000
$775,000
* Since the alternate valuation date (AVD) election was made by the personal representative, assets will be valued on the date six months from the decedent’s death. However, certain depreciable assets must be valued on the date of death, even if an AVD election is made.
* In Samantha’s situation, the following assets are valued on the AVD (7/21/2022): Personal Residence ($360,000), Investment Portfolio ($125,000), and Vintage Guitar ($200,000). The Automobile and Intellectual Property (both depreciable assets) are exceptions and are valued as of the date of death (1/21/2022), at $35,000 and $55,000, respectively.
* The valuation of Samantha’s estate is: $360,000 + $125,000 + $35,000 + $200,000 + $55,000 = $775,000.
Claude has a trust that provides $5,000 of annual income. He has the right to revoke the trust and can make amendments, as needed. Based on these characteristics, identify the party that will be taxed for the trust income distribution.
* The executor
* The beneficiaries
* The trustee
* The grantor
The grantor
* Claude’s trust contains features listed in the ‘grantor trust rules’ and is considered a grantor trust. Grantor trusts are revocable trusts in which all income will be taxed to the grantor.
The Jacksons have two kids in college at Upper State U, Martha (5th Year-Senior) & Josie (Freshman). The family spends $20,000 each year for each child in tuition expenses, plus $2,600 per child on room & board. This year, $16,200 has been disbursed from each child’s 529 account to pay tuition costs. Chelsea, the girls’ mother, takes two evening graduate courses each semester and her annual tuition is $14,500. In addition, she receives a $4,000 scholarship. The Jacksons file MFJ and have AGI of $130,000 in 2022. How much in LLC & AOTC credits are they eligible to receive on their 2022 tax return?
* $4,450
* $5,400
* $5,000
* $6,450
$4,450
* Of the children, only Josie is eligible for the AOTC since she is a freshman. Martha (5th year Senior) could qualify for LLC, while Chelsea (parent) may only qualify for the LLC. $20,000 in tuition costs were incurred for Josie & a $16,200 disbursement from her 529 was made for these expenses. Thus, Josie has $3,800 of qualifying expenses (room and board do not count). Her AOTC is calculated as follows: 100% of the first $2,000 + 25% of the remaining $1,800 ($450) = $2,450 AOTC. Chelsea incurred $14,500 of eligible expenses, however, a $4,000 scholarship reduces her pool of qualified LLC costs to $10,500. Of these, only $10,000 is considered for LLC. 20% of $10,000 = $2,000 LLC. The LLC is available per return and while Martha’s expenses qualify, the family has reached the maximum available LLC for this tax year.
* $2,450 (AOTC) + $2,000 (LLC) = $4,450
The economy is currently described as having growing gross domestic product (GDP) and seeing reducing unemployment data. Based on this information, where in the business cycle do you estimate the economy to be?
* Expansion
* Trough
* Contraction
* Peak
Expansion
* Expansion is characterized by growing GDP and lowering unemployment.
Mecayla’s option B variable universal life insurance policy has failed the 7-pay test. The policy death benefit is $300,000 with current cash value of $200,000. She has paid total premiums into the policy of $150,000, including the most recent annual premium of $10,000. If Mecayla, who is age 50, makes a policy loan of $60,000 to take a world cruise and dies the next day, what amount of tax-free death benefit will be paid to her named beneficiary?
* $300,000
* $0
* $500,000
* $440,000
$440,000
* MEC status does not change the tax-free status of the policy death benefit paid to a beneficiary. Her VUL policy is under option B, meaning the policy death benefit includes the policy face amount plus the net cash value. Outstanding policy loans at the time of death are subtracted from the death benefit. Mecayla’s beneficiary will receive, tax-free, $440,000.
* $300,000 + $200,000 - $60,000 = $440,000
If a taxpayer itemizes deductions, only medical expenses over __ ____??____ __ of AGI are deductible in 2022.
* 12%
* 10%
* 7.5%
* 20%
7.5%
* Unreimbursed medical expenses over 7.5% of AGI are eligible for deduction when the taxpayer itemizes in 2022.
When discussing with your client his tax situation you mention he may elect a standard deduction of $12,950 (2022) as a single filer. Your client gives you his expenditures for the year, which include the following:
Medical expenses = $5,500
Property taxes = $6,900
Mortgage interest = $5,500
Your client’s AGI for the year is $74,320. Which of the following would create the largest tax deduction in 2022?
* Standard Deduction
* Itemized Deductions
* Bundling Deductible Items
* None of these
Standard Deduction
* When you calculate your client’s itemized deduction it is less than the standard deduction and, therefore, you would utilize the standard deduction.
* Unreimbursed medical expenses are deductible only in the amount greater than 7.5% of AGI. $74,320 x 0.075 = $5,574. Since there were only $5,500 of medical expenses, the client’s costs do not exceed 7.5% of AGI and, as a result, no medical expense deduction is allowed. The remaining expenditures of $6,900 + $5,500 = $12,400 in itemized deductions.
* Because the standard deduction is greater ($12,950 in 2022), it would be used when filing the client’s taxes.
CAPM is used to quantify each of the following EXCEPT:
* Real return
* Expected return
* Required return
* SML
Real return
* By definition, CAPM is used to determine SML, expected and required return
Stuart was born January 15, 1960. If Stuart claims Social Security retirement benefits at age 65, what percentage of his primary insurance amount (PIA) will he receive each month?
* 70%
* 87%
* 73%
* 100%
87%
* Stuart’s full retirement age (FRA) is 67. If he claims retirement benefits age 65, he is claiming benefits 24 months prior to FRA and his monthly benefit will be reduced by 13%. 5/9% x 24 months = 13%. He will receive 87% of his PIA.
1 - 0.13 = 0.87
The S&P 500 is expected to return 15% and an investment’s beta to the S&P 500 is 0.82 and the 3-month T-bill is yielding 1%. According to CAPM, what is the expected return of this investment?
* 12.30%
* 14.12%
* 12.48%
* 13.30%
12.48%
* ri = 0.01 + (0.15 − 0.01) 0.82 = 0.1248 = 12.48%
Mecayla’s option A variable universal life insurance policy has failed the 7-pay test. The policy death benefit is $300,000 with current cash value of $200,000. She has paid total premiums into the policy of $150,000, including the most recent annual premium of $10,000. If Mecayla, who is age 50, makes a policy loan of $60,000 to take a world cruise, what amount in total federal taxes will she owe attributable to the loan, assuming she is in a 24% federal marginal tax bracket?
* $0
* $14,400
* $20,400
* $17,000
$17,000
* Mecayla’s policy is a MEC. Living distributions will be subject to tax on a LIFO basis to the extent of gain in the contract. She currently has gains of $50,000 which will be subject to ordinary income tax at 24% plus a 10% federal excise penalty tax because she is under age 59 1/2.
* $50,000 x 34% = $17,000
Bob’s, and Kevin each have a full retirement age of 67. Each of their PIA is $3,000. If Bob claims Social Security retirement benefits at age 72 and Kevin claims benefits at age 62, what is their combined monthly benefit?
* $6,000
* $6,300
* $6,708
* $5,820
$5,820
* Bob is claiming benefits 5 years after FRA. Benefits are increased 8% for each year delayed to age 70. Bob’s benefit is increased by 24% (3 x 8%). His benefit is $3,720 ($3000 x 1.24).
* Kevin is claiming benefits 5 years early and his benefits will be reduced by the maximum amount of 30%. His benefit is $2,100 ($3000 x 70%).
* Their combined monthly benefits are $5,820.
Calculate the maximum lifetime payout if a Long-Term Care benefit on a policy is $200 per day and the stated benefit period is three years.
* $146,000
* $219,000
* $292,000
* $73,000
$219,000
* The maximum lifetime payout would be $219,000, calculated as follows:
$200 (daily benefit) x 365 days = $73,000
$73,000 (annual maximum) x 3 years = $219,000
Johann passed away on 3/15/2022 with the following assets in his estate:
3/15/2022 6/15/2022 9/15/2022
Primary Residence $750,000 $715,000 $760,000
Investment Portfolio $250,000 $175,000 $205,000
His primary residence was sold on 6/15/2022. The executor made an alternate valuation election. Calculate the value of Johann’s gross estate.
* $1,000,000
* $965,000
* $890,000
* $920,000
$920,000
* By making an alternate valuation date election, the estate will be valued based on the FMV of the assets 6 months from the date of death.
* If an asset is sold or distributed within the 6-month window, the sale price is used for valuation.
* Therefore, the sale price of the residence on 6/15/2022 [$715,000] is added to the value of the investment portfolio on 9/15/2022 of [$205,000] for a total of $920,000.
