Comprehensive Flashcards

Question

After examining several funds and calculating the correlation coefficient relative to the client's existing portfolio, when do diversification benefits begin?

Answer 1

Diversification begins anytime correlation is something less than 1.

Answer 2

The lowest correlation coefficient. The closest to negative (-1) is always best.

Answer 3

The optimal portfolio

Answer 4

What portfolios are attainable and unattainable.

Answer 5

What level of risk an investor will accept for given levels of return.

Answer 6

Correlation Coefficient and Covariance measure \*Correlation of securities is always the strongest determinate as to what should be added to a portfolio.

Answer 7

Standard Deviation \*The higher the standard deviation the higher the risk.

Answer 8

Can be low if there is a low correlation of returns between the investments. Can be high if there is a high correlation of returns between the investments.

Answer 9

That any two investments move exactly opposite from one another.

Answer 10

The best combination of risk and return for a given combination of investments.

Answer 11

Standard Deviation

Answer 12

Uses Beta as risk measurement

Answer 13

1. (+/-) 1 (68%) STD 2. (+/-) 2 (95%) STD 3. (+/-) 3 (99%) STD

Answer 14

Positive Alpha --- Below the line negative Alpha

Answer 15

Securities Act of 1933

Answer 16

The Security Exchange Act of 1934.

Answer 17

The Investment Company Act of 1940

Answer 18

The Investment Advisors Act of 1940

Answer 19

Value Line

Answer 20

A. Nasdaq B. NYSE Composite C. Wilshire

Answer 21

Dow Jones Industrial

Answer 22

Tactical asset allocation

Answer 23

Strategic Asset Allocation

Answer 24

Net Income + Interest + Depreciation = NOI Or Revenue - Losses - Expenses = NOI

Answer 25

Herd Mentality

Answer 26

Naive Diversification

Answer 27

Belief Preseverance

Answer 28

Regret Avoidance In investments it leads people to sell winners too soon and to hold on to losers to long.

Answer 29

12b-1 fees

Answer 30

Closed-End Funds

Answer 31

A. The size of the fund B. The amount.of time until a distribution is made. C. The amount of time the current portfolio manager has managed the fund.

Answer 32

A. They help raise new capital B. They give investors a systematic way to accumulate capital C. Companies build good will by offering these plans to share holders

Answer 33

Bottom Up Analysts \*Looking for the next big thing. These analysts start with the company, then industry, and finally the economic climate.

Answer 34

The discounted value of all future dividends.

Answer 35

A. Devaluation B. Revaluation

Answer 36

Long term and short term government debt

Answer 37

Refers to the purchase of debt instruments in anticipation of fluctuations in the rates of return on both long and short term instruments.

Answer 38

Dividend per share ÷ earnings per share

Answer 39

Business Risk and Financial Risk PRIME cannot be reduced through diversification. Systematic Risks can't be diversified.

Answer 40

A put option

Answer 41

Purchasing stock on Margin

Answer 42

It's an income producing strategy where you sell or write call options against shares of stock you already own.

Answer 43

A. CD's B. Treasury Bonds C. Collateralized mortgage obligations

Answer 44

It's the average tax an individual pays. The rate is determined by dividing the tax liability by the taxable income.

Answer 45

Used to determine tax liability

Answer 46

NOL losses currently cannot be carried back but they can be carried forward, (except for select agricultural or insurance filers). However the NOL can only offset 80% of the current year's income for years after 12/31/17.

Answer 47

A person who rents their home for less than 15 days is not required to include the income as it is considered personal property, not rental or mixed. However, no deductions related to the expense of renting out the home are allowed other than taxes and interest associated with the property that would normally be deductible as an itemized deduction.

Answer 48

The 4th quarter federal income tax estimated payment is due by January 15th of the year following the year the payment is being made for.

Answer 49

It is the tax rate applied to the last dollar earned.

Answer 50

The CAPM formula Rf + b(Rm-Rf)

Answer 51

A. Married filing jointly B. Married filing separately \*Spouse does not qualify for filing qualifying widower until after 2 years following the spouse's death.

Answer 52

The purchase price + sales tax + set costs

Answer 53

Appreciation amount in the property ÷ Market Value of the Gift) x Gift Tax Paid on the gift + the original cost basis.

Answer 54

The property is deemed worthless

Answer 55

Equipment Patents Copyrights Other Intangibles

Answer 56

1231 Asset

Answer 57

The sales price exceeds the original purchase price. Section 1231 gain is a capital gain

Answer 58

Real property subject to ACRS and accelerated depreciation was used.

Answer 59

All or portion of gain on tangible personal business property resulted from depreciation taken.

Answer 60

The sale of depreciated assets

Answer 61

Is the tax rate applied to the last dollar earned.

Answer 62

Act with honesty, integrity, competence, and diligence. Act in the client's best interest Exercise due care Avoid or disclose and manage conflicts of interest Maintain the confidentiality and protect the privacy of client information Act in manner that reflects positively by on the financial planning profession and CFP Certification

Answer 63

The Fair Credit Reporting Act

Answer 64

Duties owed to clients defines material conflicts as ones that could impact advice or cause harm.

Answer 65

An increase in the price would lead to an increase in the total amount spent on purchases of the product .

Answer 66

An increase in price would have no effect on the total amount spent on purchases of the product

Answer 67

Raise the discount rate

Answer 68

Purchase Treasury securities and decrease the reserve requirements for banks.

Answer 69

Transfer for Value Therefore the death benefits is taxable to the company at the time of death. Taxable amount = Death Benefit - Purchase Price of the Policy - Premiums Pais

Answer 70

Cash Value

Answer 71

1. It can be a fringe benefit to an employee 2. Insurance premiums are usually split between the employer and employee 3. It may be used to fund a buy-sell stock redemption agreement.

Answer 72

Includes Coverage A bodily injury and property damage liability Coverage B personal and advertising liability Coverage C Medical Payments "Other structure s" is not included

Answer 73

Verbal threshold: Lawsuits may be allowed when there is a fatal injury. \*There is "no pure fault" existence in any State in the US.

Answer 74

The applicant must have an insurable interest to make a contract

Answer 75

It may be part of a standard ISO homeowners policy or a stand alone policy.

Answer 76

Equity REITs can participate in the appreciation of the underlying properties.

Answer 77

A long hedge means that the investor own buys the futures contract to insure a certain price of a commodity that he or she does not own.

Answer 78

Standard Deviation

Answer 79

Beta as it's measure of risk

Answer 80

Commerce Clearing House Federal Tax Guide

Answer 81

US District Court

Answer 82

Case by Case Basis

Answer 83

A. Proposed Regulations B. Temporary Regulations C. Final Regulations

Answer 84

A. Internal Revenue Code B. Congressional Committee Reports C. Treasury Regulations D. Private Letter Rulings.

Answer 85

A. Deductions from losses on sale or exchange of property B. Deductions from rental and royalty property C. One half of self employment tax paid D. Contributions to pension, profit sharing, annuity plans, IRAs, etc. E. Penalty on pre mature withdrawals from time savings accounts or deposits. F. Interest on student loans. G. Health Savings Accounts H. Trade or business expenses. I. Alimony payments - divorced before 12/31/2018

Answer 86

Are no longer deductible!

Answer 87

Above the line Deduction for Alimony paid prior to 12/31/2018 Alimony received is earned income if divorced on it before 12/31/18.

Answer 88

Only first 3 years of alimony Only applies if you have a greater than $15,000 decrease between years 1 and 2 or years 2 and 3. Formula P1 + P2 - 2P3 - $37,500 = Recapture.

Answer 89

Moving expenses be are no longer deductible except for be armed services relocating to a permanent duty station.

Answer 90

Greater of Sum of Itemized Deductions or Standard Deduction. Standard be Deduction given amount for tax year. Itemized Deductions 1. Charitable Contributions 2. Limited Casualty Losses (in excess of $100 + 10% AGI) 3. Medical Expenses (in excess of 7.5% of AGI). 4. Limited misc Itemized Deductions 5. Interest on mortgage and investments, subject to limitations. 6. Taxes (State/Sales & use, local, US property) capped at $10,000. Qualified Business Income Deduction.

Answer 91

A. Income in Respect of Decedent B. Gambling Losses to extent of Gambling Winnings C. Impairment Related Work Expenses for Handicapped D. Annuity losses for decedent annuitant.

Answer 92

Home mortgage in excess of $1 million is not deductible for mortgages dated prior to 12/15/17 ($750,000 for mortgages dated after 12/15/17).

Answer 93

No home equity interest is deductible unless used to improve the property.

Answer 94

Taxable Bond Rate x (1- Marginal Tax Rate) = equivalent tax free rate

Answer 95

Taxpayer must file if he has greater than or equal to $400 of net earnings.

Answer 96

Ordinary Loss

Answer 97

Excluded as income

Answer 98

The average tax an individual pays.

Answer 99

1. Equipment 2. Patents 3. Copyrights 4. Other Intangibles

Answer 100

Any depreciable property is sold at a profit above it's original cost.

Answer 101

To the sale of depreciated assets.

Answer 102

1. Gross Income 2. Support Test 3. Member of Household or Family Member 4. Citizenship Test 5. Joint Filing Test

Answer 103

The parent with the higher AGI can take the claim. Both parents can't claim the child.

Answer 104

We're eliminated for years after 12/32/17 by TCJA

Answer 105

HDHP for family is $2800 and $1400 for a single person.

Answer 106

The amount deducted for student loan interest is $2500 and it's an above the line Deduction.

Answer 107

Is an above the line Deduction

Answer 108

$104,000 to $124,000 for married filing jointly. Formula:. Reduction = Contribute Limit x AGI - Lower Limit ÷ $20,000

Answer 109

Typically a short term loan. (One Year or less).

Answer 110

An IPA (Individual Practice Association). Allows the greatest flexibility among HMO coverages. B

Answer 111

No they are not. Entity agreements, where the firm owns the policy, is also not tax deductible.

Answer 112

If an employer terminates a plan but is still in business, COBRA would apply to the formerly covered employees. However, if the business ceases for any reason causing the plan to terminate then COBRA does not apply.

Answer 113

Descriptions 1. Unilateral 2. Aleatory 3. Conditional 4. Personal Contact of Adhesion.

Answer 114

Payments for employment-related care made to a dependent of the taxpayer do not be qualify for child care and dependent care expenses.

Answer 115

Will pay 100% of first $2000 and 25% of the next $2000. Applies to post secondary education i.e. college. Phase out for AGI $160,000 to $180,000 MFJ and $80,000 to $90,000 other filing statuses.

Answer 116

Maximum credit per tax payer 20% of qualifying expenses up to $10,000. AGI phase out $118,000 to $138,000 MFJ and $59,000 to $69,000 other filing statuses.

Answer 117

Child Tax Credit is $2000 per child against the tax obligation, up to $1400. Ex 3 children $1,400 x 3 = $4,200. Due to no tax obligation due. Children 17 and over don't qualify.

Answer 118

Is fully refundable. American Opportunity Credit and Child Tax Credit may be partially be refundable.

Answer 119

1. Qualified dependent credit 2. Child Tax Credit 3. Earned Income Credit 4. Credit for estimated tax payments

Answer 120

Applies to to qualified dependents and/or qualifying children 17 and over. Limited to $500 Grandma Should Not Retire Gross Income - less than $4200 Support Not qualifying child Relationship

Answer 121

The following conditions must be met 1. The taxpayer must provide over 1/2 cost of maintaining the household, which is also the principal residence of the child. 2. The child must be a dependent 3. If married both parents must go to school or work Dependent Care Credit is not phased out. Provides Credit of 20% on up to $3000.

Answer 122

1. The business credit carryforwards to the current year. 2. The amount of the current year business credit 3. The business credit carrybacks to the current year

Answer 123

Refundable and Not Refundable

Answer 124

$1300 for both types

Answer 125

Is a passive activity

Answer 126

1. Active 2. Passive 3. Portfolio

Answer 127

1. The similarities and differences in types of business 2. The be extent of common control 3. The be extent of common ownership

Answer 128

1. More than 500 hours of participation. 2. Taxpayer is the only one who substantially participates. 3. Taxpayer spends greater than 100 hours in the tax year and no one else more. 4. Taxpayer has materially participated in any 5 of the previous 10 years. 5. The activity is a personal services activity and the individual has materially participated in any 3 prior years. 6. Taxpayer participates 100 or more hours in this activity and total participation in all such activities exceeds 500 hours.

Answer 129

The cost of goods assigned the most current inventory costs

Answer 130

The cost of goods sold is based on the costs of the first goods purchased.

Answer 131

The basis of personal property converted to business use will be the tax payers adjusted basis on that property as of date of conversion or the FMV if lower.

Answer 132

A general partnership with a corporate partner

Answer 133

1. Fiscal Year -- ends on the last day of a month other than December 2. Calendar Year -- Ends on the last day of December 3. 52-53 Week Year -- Ends on a specifiedvday of the week (such as Friday) that occurs in the last week of the blast month of the tax year.

Answer 134

1. Income may be deferred until cash is received. 2. Deductible Expenses accelerated if paid.

Answer 135

Taxpayer who uses the cash method for reporting most items may use a different method for reporting self employment income.

Answer 136

When the invoice is received

Answer 137

If the taxpayer does not keep books or accounting records

Answer 138

The Client Claimed the Defendant Lied Civil dispute CFP's employer or partners Defend against wrong doing Legal process \*Keep in mind that this does NOT include ban IRS audit.

Answer 139

The President Publicly Shamed Russia Private Censure Public Letter of Admonition Suspension Revocation

Answer 140

Teachers Accountants Banks or Broker Dealers Lawyers Engineers TABLE

Answer 141

Venture capalists - advisors solely to venture capital funds Insurance Companies - advisors whose only clients are insurance companies Private funds - advisors solely to private funds with less than $150 million State - Advisors whose clients live in their home state and don't provide advice, services, reports etc. about nationally listed securities. Foreign advisors without a place of business in the US. Exchanges - advisors not providing advice about securities traded in a national exchange. VIPs ARE SAFE

Answer 142

Parties Terms of termination of the agreement Services to be provided as part of the agreement Date of the agreement and it's duration PTSD

Answer 143

CRAPO Cash (send me a check) Reduce future premiums Accumulate at interest Paid up permanent additions (death benefit increases proportionally). One Year Term Insurance additions (death benefit increases temporarily).

Answer 144

CHAD Catastrophe - losses must not pose a catastrophic risk to the insurer Homogeneous - many large similar exposure units Accident - losses must be accidental from the insured's point of view. Determinable - losses must be measurable and determinsble

Answer 145

COALL Consideration Offer Acceptance Lawful purpose Legal competency of all parties

Answer 146

RODE Reserve Rate Open Market Operations Discount Rate Excess Reserves

Answer 147

SARA Support - provide more than 1/2 support Abode - child must live with taxpayer more than 1/2 the time Relationship Test - tax payers's child; descendant of the taxpayer's child, the tax payers brother, sister, step brother, step sister, half brother, half sister, a descendant of the tax payers brother, sister, step brother, step sister, half brother, half sister. Age - must be under the age of 19; must be the age of 24 and a full time student.

Answer 148

5% of the unpaid balance for each month up to 25% of the unpaid tax balance. However if a tax return is filed more than 60 days the minimum failure to file penalty is the lower of $435 or 100% tax due.

Answer 149

0.5% penalty reduces the failure to file penalty.

Answer 150

Preparer penalty for willful or reckless conduct is the greater of $5000 or 50% of the income derived by the preparer for the return.

Answer 151

75% of the deficiency

Answer 152

1. Attorney 2. CPA 3.. Enrolled Agent

Answer 153

If he makes a substantial understatement of his tax liability, generally more than 10% of the correct tax liability and at least a $5000 tax deficiency.

Answer 154

Are not deductible after 1/1/18 per the TCJA. Expenses from Self Employment are deducted above the line and have no AGI floor.

Answer 155

When this type of property is donated to a charity and not used to carry out it's tax exempt purpose the Deduction available to the donor is limited to they owner's cost basis and will be subject to the 50% limitation.

Answer 156

It can be deducted up to net investment income without making a special election. Net Investment Income includes Interest Ordinary Dividends Short Term Capital Gains If Long Term Gains and Qualified Dividends are elected ordinary income then the full amount full amount could be deducted.

Answer 157

Lower of the fair market value or basis

Answer 158

FMV unless basis is chosen

Answer 159

State Income or sales tax (whichever is higher) are deductible as itemized deductions for years after 12/31/17 they are capped at $10,000.

Answer 160

Are deductible as a direct business cost in which they are deducted for AGI not as itemized deductions.

Answer 161

Are deductible from the tax liability but not an itemized deductions.

Answer 162

30% of his AGI and the remaining can be carried over for the next 5 years.

Answer 163

Taxpayer's investment Interest Deduction is limited to the investment income. \*Capital Gains could be added to reach maximization.

Answer 164

Insured on a HO policy with endorsement known as "personal articles floater" which is a form of Inland Marine Insurance. Coverage is provided on an appraised value.

Answer 165

Own Occupation to Modified Any Occupation

Answer 166

The Last to Die will pay on the second death and if held in trust it will not add to the insured estate tax due because it will not increase the taxable estate.

Answer 167

For Renters Insurance

Answer 168

Higher than the nominal rate

Answer 169

Per TCJA home mortgages are limited to qualified residential interest and maximum indebtedness of $750,000 financed after 12/15/17. Debt prior to 12/15/17 $2 million limit applies. (Qualified Mortgage ÷ Total Mortgage x Interest Paid = Amount that is deductible)

Answer 170

Are not deductible unless the.loss was as a result of a federally declared disaster. For business losses reimbursements are not included in AGI but rather reduce the loss.

Answer 171

Prescription Drug Costs, Doctor's Bill, Expense Cost to see a specialist, Health premiums. Deduction is limited to expenses that exceed 7.5% of AGI. To calculate, AGI x 7.5% - medical expenses = deductible amount

Answer 172

$0.17 cents per mile may be deducted and $50 per person for lodging. Mileage Calculation = mileage x amount each way x number of trips x .17 Lodging Calculation = number of trips x $50 (however many people).

Answer 173

Not deductible after 12/31/17

Answer 174

Income generated from a hobby activity is included in gross income above the line. Any expenses can't be deducted. If an activity earns a profit in 3 out of 5 years the IRS has the burden of proof of showing that there is no profit motive. If there has not been a profit in 3 out of the last 5 years the taxpayer has the burden of proof.

Answer 175

Is generally not deductible but an exemption is non prescription insulin.

Answer 176

Only materials and expenses are deductible. Not artistic contribution or time. No deduction allowed for use of property

Answer 177

Taxpayer is required to use the lesser of fair market value or adjusted basis for the determination not the charitable income tax deduction.

Answer 178

Are deductible, the policy must be guaranteed renewable or non cancelable Premiums paid are deductible but limited based upon age.

Answer 179

Make sure itemized expenses don't total more than standard deduction.

Answer 180

QNEC, qualified non elective contributions, to a 401k plan to maintain qualification is an ordinary/necessary business expenses. Fines are not business expenses

Answer 181

Expenses incurred in connection with issuing and selling stock are not deductible. Other expenditures is the rule of the lesser of $5000 or cost of expenditures.

Answer 182

Section 1031 like kind exchanges - Tangible Property is not eligible Only property that used in a trade or business.

Answer 183

Anything not in like kind in the exchange is called "boot."

Answer 184

Are not recognized

Answer 185

For tax purposes, bargain sale transactions cannot generate capital losses.

Answer 186

Are not taxable events.

Answer 187

Is up to the extent of any capital gains for that year plus an additional $3,000 against income from other sources.

Answer 188

Generates the largest percentage of gross collections for the Internal Revenue Service.

Answer 189

There is no statute

Answer 190

Applies to secular trust used for deferred compensation

Answer 191

CAT CORN Computers, Autos, and Trucks are 5 year.

Answer 192

Office Furniture

Answer 193

27.5 years

Answer 194

Amortization

Answer 195

Is the lower of FMV or adjusted basis for depreciation.

Answer 196

Is a periodic expensing of tangible property, including real and personal property used in business.

Answer 197

Is a periodic expensing of the cost of intangible assets.

Answer 198

Is the expensing of natural resources as they are being used up. This expense will fluctuate with the actual taking of the resource from the land.

Answer 199

Is a capital recovery

Answer 200

Uses mid month

Answer 201

Is designed to help smooth the lease expense vs the depreciation expense. The lease is front load.

Answer 202

1. Tangible personalty 2. Improvements to land

Answer 203

Straight Line Depreciation

Answer 204

Was discontinued in 1987

Answer 205

Advance rent is any amount you receive before the period that it covers. Include advance rent in rental income in the year it is received regardless of the period covered or the method of accounting used.

Answer 206

Hold no retained earnings since all profits or losses are passed through to it's owners.

Answer 207

S Corporations, LLC and Partnership are considered "pass through" entities. "Pass through" means that the entity is not taxes separately from it's owners, but passes it's profits and losses through to the owners in their pro rata share of ownership.

Answer 208

S Corporations, LLC and Partnership are considered "pass through" entities. "Pass through" means that the entity is not taxes separately from it's owners, but passes it's profits and losses through to the owners in their pro rata share of ownership.

Answer 209

S Corporations

Answer 210

1. The number of shareholders is unlimited 2. The bankruptcy of a major shareholder has NO effect on the business form. 3. Shareholder liability is limited.

Answer 211

1. Limited Partnership 2. A General Partnership

Answer 212

C Corporation

Answer 213

20% if the business is deemed to be PHC by the IRS.

Answer 214

1. Receives income when the Corporation declares and pats a dividend. 2. Votes for the Board of Directors at the annual shareholders' meeting. 3. Receives a K1 annually in order to prepare a personal income tax return. 4. Reports on a personal income tax return a pro rata share of the corporate profit or loss.

Answer 215

State income taxes deducted as an itemized deduction will be added back into regular income to calculate Alternative Minimum Taxable Income.

Answer 216

Executed after March 1, 1986 but not before, are add back items.

Answer 217

Section 170 deduction is $1,040,000 for 2020. However the amount is reduced dollar for dollar for acquisition amounts above $2,590,000 placed into service during 2020.

Answer 218

Immediately reduces the basis of the property by whatever the amount claimed (not to exceed original cost). The amount of deduction is limited in total and further subject to Income limitation before the deduction is taken.

Answer 219

1. When the asset is sold before it would have been fully depreciated. 2. When the business use drops below 50%

Answer 220

Section 179 is an upfront business deduction, now at $1,040,000 (2020) that can be used by businesses to reduce tax liabilities. It's possible to reduce Section 179 deduction to zero, depending how much is placed into service, Section 179 would not have any advantages over other methods of depreciation.

Answer 221

For dependent children unearned income over $2,200 is subject to tax at the parents tax rates. NOT earned income

Answer 222

Does not recognize the income not received.

Answer 223

The first $137,700 for 2020 will be taxed at the full employee FICA rate of 7.65%. Amounts earned over $137,700 will be taxed at the Medicare rate of 1.45%.

Answer 224

To avoid an underpayment penalty, substantially equal periodic payments must continue for the greater of 5 years or until the individual attains 59 1/2.

Answer 225

Form 1099 R and Form 5498

Answer 226

1. Rental Real Estate income 2. Shareholder's share of A Corporation income in excess of salary.

Answer 227

Personal property tax is not included.

Answer 228

$50 per card

Answer 229

Are taxed at the bargain element (difference between the market price and the strike price) as ordinary income when exercised. (Market Price - Stock Price) x Number of Shares x Tax Rate = Tax

Answer 230

The option is not taxed at the grant if the exercise price is equal to or greater than the fair market value of the stock.

Answer 231

If an individual is not an employee of the company then the stock options they receive are non qualified.

Answer 232

The security holding period in the case of non qualified options begins on on the date the option is exercised.

Answer 233

When both ISOs and NWSOs are available in the same year the individual can exercise and sell the unfavored NQSOs to generate enough cash to purchase and hold the favored ISOs.

Answer 234

1. No taxable income will be recognized by the employee when the qualified option is granted or exercised. 2. For favorable tax treatment the option must be held two years and the stock for one year after exercise.

Answer 235

$57,000 for 2020

Answer 236

Current retirement benefit in a defined benefit plan is most affected by the current number of years at employment because minimum funding is based upon current accrued benefits not projected retirement benefits.

Answer 237

Can assist a 401(k) plan in meeting the ADP test because it automatically deems that an employee defers a specific amount unless he elects out of the automatic deferral amount.

Answer 238

Profit Sharing Plan the contribution is limited to the lesser of $57,000 (2020) or covered compensation. Top Heavy must provide a benefit to all non key employees of at least 3%.

Answer 239

Only life insurance may be included in a qualified retirement plan. To qualify under the incidental benefit rules the entire premium for universal life cannot exceed 25% of the employer's aggregate contributions and 50% for whole life.

Answer 240

Actual Deferral Percentage Test

Answer 241

Mandatory funding are a characteristic of pension plans.

Answer 242

$57,000 is the total limit for an employee under 50 from all sources including employee deferral, employer match, forfeitures and profit sharing contributions by the employer.

Answer 243

Must contain 1. A definite and non discretionary employer contribution formula. 2. Forfeitures can be reallocated to the remaining participates accounts in a non discrimatory manner or used to reduce employer contributions. 3. An individual account must be maintained for each employee of employer contributions.

Answer 244

The maximum deductible contribution is 25% of the total covered compensation. The limit to an employee's salary is $285,000.

Answer 245

The maximum defined benefit is the lesser of $230,000 or compensation.

Answer 246

1. The right to name beneficiary 2. The right to surrender policy 3. The right to assign policy 4. The right to borrow from policy

Answer 247

The unlimited marital deduction applies to property included in the decedent's gross estate.

Answer 248

Adjustable taxable gifts are added back to the taxable estate to determine the tentative tax base The tentative tax is reduced by the unified credit.

Answer 249

TCJA repealed personal Casualty and Theft losses for Dec 31, 2017 - Jan 1 2026. If a loss happens during the administration of the estate, the estate can either deduct on the 706 or 1041.

Answer 250

Unpaid medical expenses can be deducted on the 1040 or the 706 but not the 1041.

Answer 251

$15,000 annual exclusion is not available for bequests.

Answer 252

are not fully subject to income tax because the recipient has a tax basis equal to the proceeds. Proceeds are includible in estate for tax purposes only if grantor retained an incident of ownership. Life insurance premiums are not deductible when personally owned, and the 3-year rule applies to a life insurance policy regardless of irrevocability.

Answer 253

used to avoid probate, not to lower the value of the gross estate

Answer 254

applies to life insurance and gift taxes paid on gifts made within three years, so the insurance is not included but the gift tax paid is included.

Answer 255

life premiums are not deductible as a business expense. Any death benefit pad will be nontaxable to PDC.

Answer 256

distribute the remainder of the property to the charity while generally distributing income to a non-charitable beneficiary

Answer 257

Both CRATs and CRUTS serve to minimize income and estate taxes while providing life income to the beneficiary.

Answer 258

The CRAT is a better option than the CRUT because the payout from the CRAT would be a fixed dollar amount, rather than a fixed percentage

Answer 259

a GRAT and therefore no charitable tax deduction

Answer 260

are not qualifying charitable organizations.

Answer 261

requires invasion of corpus to pay annual income if there is a shortage

Answer 262

Income Control over assets income can increase

Answer 263

This estate planning tool is created and managed by a qualified charity to provide a variable income stream (based on portfolio performance) to non-charitable beneficiaries.

Answer 264

The remainder interest can go to any non-charitable beneficiary chosen by grantor. A corporation cannot be the grantor. The charity has the lead interest, not a remainder interest and the grantor will only get a charitable income tax deduction if the grantor elects trust status.

Answer 265

A charitable remainder unitrust

Answer 266

100% of salary up to $13,500 (2020). Employer to match dollar for dollar up to a 3% match.

Answer 267

Safe harbor plans require 100% vesting, while 401(k) plans with QACAs require two year 100% vesting. The matching contributions are different for the plans. Employees are not required to participate in either plan. Both plans eliminate the need for ADP testing, which means that they eliminate the need for qualified matching contributions and corrective distributions.

Answer 268

Premiums under an employer-paid plan are deductible to the employer when paid to the insurance company. The employee must claim the benefits from the employer-paid policy as taxable income. If employees pay for the premium on an after-tax basis, benefits are tax exempt. Premiums paid by the employee are deductible only though a Section 125 cafeteria plan, then benefits are taxable. Definitions of disability are much more liberal under short-term disability than under long-term disability.

Answer 269

A 403(b) plan is a tax-advantaged plan (tax qualified), not a qualified retirement plan. All of the others are qualified plans subject to ERISA rules.

Answer 270

Generally, only contributions up to 25% of covered compensation can be deducted for a year.

Answer 271

All qualified plan assets are held in a tax exempt trust and all earnings within the trust are deferred from taxation until distributed from the plan.

Answer 272

Total Contribution Amount x (gross salary - minimum phase out#) / (difference of salary and phase out) = the amount that's not included in the deduction.

Answer 273

May not be another source of funds. Unless the employer has actual knowledge to the contrary, the employer may rely on the written representation of the employee to satisfy the need of heavy financial need.

Answer 274

The 401(k) plan avoids ADP testing ADP and NHCE is irrelevant.

Answer 275

Account value based benefits. Fixed employer contributions based upon terms of plan.

Answer 276

top heavy, the plan must provide a benefit to all non-key employees of at least 3%.

Answer 277

The 50/40 rule requires that defined benefit plans cover the lesser of 50 employees or 40% of all eligible employees. 40% of the nonexcludable employees was included in the calculation.

Answer 278

On the date of exercise.

Answer 279

ISO is not subject to payroll tax NQSO are subjec to payroll taxes

Answer 280

Will have a negative impact on AMT Tax not a positive one therefore AMT will not be applied.

Answer 281

Non-qualified stock options are taxed on the “bargain element” (difference between the market price and the strike price) as ordinary income when exercised. (Market Price – strike price) × Number of Shares × Tax Rate = Tax

Answer 282

there is no regular tax for ISOs From the grant date to the exercise date there is an adjustment for AMT (LTCG). From the exercise date to the sell date (LTCG).

Answer 283

In the case of NQS Options, the option is not taxed at the grant if the exercise price is equal to or greater than the fair market value of the stock.

Answer 284

No taxable income will be recognized by the employee when the qualified option is granted or exercised For favorable tax treatment the option must be held two years and the stock for one year after exercise.

Answer 285

the individual can exercise and sell the unfavored NQSOs to generate enough cash to purchase and hold the favored ISOs. It would also be valuable to have both if they issued over $100,000 in options exercisable in the same year because there is a $100,000 limit on ISOs.

Answer 286

The tax implications are immediate and the income is recognized as soon as the option is exercised rather than when the stock is subsequently sold.

Answer 287

If all gain has been apparently made in a security, rather than lose the profit, and since there are no special advantages to holding non-qualifieds, it may be the time to exercise and to follow with an immediate sale. The rest of the options are actually reasons for holding the option without exercising it.

Answer 288

Employer is unable to deduct any contributions to a non-qualified plan until the employee actually takes constructive receipt. Death benefits from a split-dollar arrangement, both the employer and the employee's beneficiary's share, are generally tax free.

Answer 289

The timing of employee taxation on properly executed non-qualified and qualified plans are the same. Non-qualified plans can be split dollar plans, executive bonus plans, etc.

Answer 290

Under IRS regulations an amount becomes currently taxable to an executive even before it is actually received if it has been “constructively received.”

Answer 291

An excess benefit plan extends the same benefits to employees whose contributions to the plan are limited by Section 415 (e.g., employee earns $285,000 yet receives $57,000 contribution instead of $70,000 contribution due to Section 415 limitation on a 25% money purchase plan). An excess benefit plan would put additional $13,000 into non-qualified retirement plan. Do not confuse with a SERP which provides benefits in excess of the Section 415 limits AND ignores the covered compensation limits (i.e., $285,000 in 2020) applied to qualified plans.

Answer 292

SERP supplements the pension plan without regard to limits imposed upon salary levels (i.e., maximum salary of $285,000 in 2020) or the maximum funding levels of Section 415. Do not confuse with an excess benefit plan which extends the benefits of a company's qualified plan above the Section 415 limits but still adheres to maximum salary limitations.

Answer 293

An unfunded deferred compensation plan

Answer 294

It may provide for benefits in excess of qualified plan limits It must be entered into prior to the rendering of services to achieve deferral of compensation. The contribution underlying the agreement may be paid from the current compensation of the employee

Answer 295

A funded deferred compensation plan

Answer 296

Under both the funded plan and an informally funded plan, the IRS may likely rule that the employee is in constructive receipt of income unless there is a substantial risk of loss or forfeiture.

Answer 297

Are considered ordinary income. Additionally, any amounts under the Social Security cap will be subject to the OASDI tax. All amounts will be subject to Medicare tax. "Golden parachute" payments are also subject to an additional 20% excise tax. Because these are non-qualified plans, no lump sum treatment or IRA rollover options apply.

Answer 298

favor younger entrants

Answer 299

Contribution up to $57,000

Answer 300

Must have a definite allocation formula based upon salary and/or age or any other qualifying factor. it is a pension plan, are fixed by the funding formula and must be made annually.

Answer 301

favor older age entrants with less time to accumulate, and therefore, require higher funding levels.

Answer 302

The maximum defined benefit is the lesser of $230,000 (2020) or his compensation

Answer 303

Safe harbor plans require 100% vesting, while 401(k) plans with QACAs require two year 100% vesting. The matching contributions are different for the plans. Employees are not required to participate in either plan. Both plans eliminate the need for ADP testing, which means that they eliminate the need for qualified matching contributions and corrective distributions.

Answer 304

An advantage of profit sharing plans is that they PERMIT withdrawal flexibility

Answer 305

The unit credit formula rewards many years of service

Answer 306

If there are at least 10 years of service put in. The maximum benefits under IRC 415(b) are reduced for participation less than 10 years

Answer 307

is a profit sharing plan

Answer 308

Money purchase plan

Answer 309

Contribution Rate / (1 + Contribution Rate) = Self-employed contribution rate

Answer 310

Base the benefit on the years of service and salary level of employees, while taking into consideration some of the benefits of Social Security Base the benefit retirees receive on a fixed percentage of every employee’s salary, limited to the annual compensation limit Define the benefit for retirees as a fixed dollar amount, regardless of income level

Answer 311

Social Security

Answer 312

A definite and non-discretionary employer contribution formula Forfeitures can be reallocated to the remaining participants' accounts in a non-discriminatory manner or used to reduce employer contributions An individual account must be maintained for each employee of employer contributions

Answer 313

Are not allowed under an ESOP plan but are allowed under a stock bonus plan

Answer 314

Require individual accounts Definite Contribution Allocation Formula

Answer 315

The limit only applies to defined contribution plans Salary deferrals are included as part of the annual additions limit

Answer 316

Can both receive 19,500 (qualified and deferred comp plans

Answer 317

Using the excess method is the lesser of the formula amount your given (40 years × 1.5%) or 26.25% (35 years × .75%)

Answer 318

Generally combines a money purchase pension and a profit-sharing plan

Answer 319

Applies in a non-safe harbor plan

Answer 320

The actuarial assumptions used to determine plan contributions. The total return on plan assets. The age of the participant. The includible compensation for the plan year for the participant

Answer 321

The ESOP must own at least 30% of the corporation’s stock immediately after the sale The owner must reinvest the proceeds from the sale into qualified replacement securities within 12 months after the sale The ESOP may not sell the stock within three years of the transaction unless the corporation is sold The owner must not receive any allocation of the stock through the ESOP

Answer 322

Are defined benefit plans due to the guaranteed investment returns and benefit formula, not simply a contribution amount. While cash balance plans provide guaranteed rates of return, they are not 100% guaranteed by the PBGC (PBGC has coverage limits). Cash balance plans use 3-year cliff vesting only.

Answer 323

Deductions for interest payments are not limited for ESOP plans ESOPs must permit participants, who are aged 55 or older and who have at least 10 years of service, the opportunity to diversify their accounts The mandatory 20% income tax withholding requirement does not apply to distributions of employer stock from an ESOP

Answer 324

Cash Benefit Plans are required to offer payment of an employee'sbenefit in the form of a series of payments for life. ## Footnote Traditional defined benefit plans define an employee's benefit as a series of monthly payments for life to begin at retirement, but the cash balance plan defines the benefit in terms of a stated account balance.

Answer 325

It favors older participants It requires actuarial assumptions The maximum individual annual additions is the lesser of 100% of pay or $57,000

Answer 326

Employees make after-tax contributions to a thrift; employers don't make contributions After-tax employee contributions cannot exceed the lesser of 100% of compensation or $57,000

Answer 327

The amount of annual contributions needed to fund single life annuities for the participants at retirement

Answer 328

Payments under a settlement option of a life annuity are partially subject to income tax

Answer 329

Proceeds are includible in estate for tax purposes only if grantor retained an incident of ownership.

Answer 330

The $15,000 annual exclusion is not available for bequests

Answer 331

"wasting assets" are any assets that naturally will decline in value as time passes. Copyrights become less valuable as they come closer to their expiration. Annuitized annuities will decline due to payouts. These “wasting assets” cannot use the AVD, the must use Date of Death value. Any assets sold between DOD and AVD will use the sale price. 1. Annuities 2. Copyrights

Answer 332

A Blockage Discount

Answer 333

Asset values are based upon the fair market value on the date of death or six months after the date of death for the gross estate. Taxes are progressively higher as more assets are transferred during life Value is determined on the date of the transfer of the assets for lifetime transfers

Answer 334

Terminable interest property

Answer 335

Is not a terminable interest

Answer 336

The value of the CRAT is included in the gross estate and then deducted from the adjusted gross estate as a charitable deduction. Only gift taxes paid on gifts made within three years are included under the gross up rule.

Answer 337

The premiums are generally less than if purchasing two individual policies on the same insureds. Proceeds may or may not be includible in one of the insured's gross estates. Survivorship life insurance can be used in an irrevocable life insurance trust (ILIT).

Answer 338

16,000,000 - Gross Estate 16,000 Funeral 15,000 Debts-C _50,000 Debts-M_ **15,919,000 AGE** 34,000 UL _260,000 UM_ **15,625,000**

Answer 339

Debts and obligations of the decedent are deductible from the gross estate. Only 1/2 the mortgage on community property is deductible.

Answer 340

Are not deductible as a business expense. Any death benefit paid will be nontaxable.

Answer 341

All bequests are included in the gross estate

Answer 342

The value of the interpolated terminal reserves plus any unexpired premium

Answer 343

Donor retains a life estate in the gift property Donor retains the power to revoke or amend the gift Completed gift are not pulled back into the estate. Additional information for reference on the estate pullback rules: ILIT that have insurance policies transferred into them will be added to the gross estate, if the ILIT was created and insurance purchased, it will be excluded from the gross estate.

Answer 344

Incidence of ownership of life insurance policies assigned within three years of death are includible in the decedent's estate, as are CRATs and CRUTs. Any amount subject to the gross up rule is includible in the taxable estate but must be for gifts made within three years of death.

Answer 345

The marital deduction has the effect of treating the husband and wife as one economic unit for gift and estate taxes. Qualifying all of the decedent's property for the marital deduction may result in excess estate tax being paid.

Answer 346

Bequeath the applicable exemption equivalent amount to a **bypass trus**t and the balance to the surviving spouse in a qualifying way.

Answer 347

Totten trusts are used to avoid probate, not to lower the value of the gross estate.

Answer 348

Qualified Personal Residence Trust Family Limited Partnership Irrevocable Life Insurance Trust

Answer 349

Created at death

Answer 350

The creation of a joint tenancy with right of survivorship with the creator's spouse

Answer 351

The 3-year rule applies to life insurance and gift taxes paid on gifts made within three years, so the insurance is not included but the gift tax paid is included

Answer 352

The right to change the name of a charitable beneficiary to another charitable beneficiary.

Answer 353

It is generally not includible in any insured's gross estate, if owned in an ILIT It can provide liquidity to pay estate taxes at the death of the second insured Premiums are usually less expensive than for individual policies on each of the two insureds for the same face amount

Answer 354

Are included in the gross estate of the transferor.

Answer 355

Unpaid medical expenses can be deducted on the 1040 or the 706 but not the 1041.

Answer 356

The marital deduction is not a credit, but is a deduction against the adjusted gross estate in calculating the taxable estate.

Answer 357

The value of the death benefit will be eligible for the unlimited marital deduction

Answer 358

A Charitable Bequest

Answer 359

The unlimited marital deduction applies to property included in the decedent's gross estate.

Answer 360

A reversionary interest is one that reverts back to the donor after some time or event

Answer 361

The use of the unlimited marital deduction can shelter future appreciation of an asset from estate taxes at the death of the second-to-die spouse.

Answer 362

Precludes invasion of corpus.

Answer 363

50% of the fair market value must be included in Rick's estate because of the deemed contribution rule because his joint tenant Amber is his spouse. If he titled JTWROS with anyone but a spouse we would use the "actual contribution rule" in which case he would have $400,000 included in his gross estate. Note that is he had titled the property tenants in common, he would have had $400,000 inclusion.

Answer 364

IRS qualified property determination is not required as part of gift giving.

Answer 365

Not subject to the gift tax regime

Answer 366

The donor relinquished all control over the asset There was delivery to the donee There was acceptance by the donee

Answer 367

The federal gift tax applies to all gratuitous transfers.

Answer 368

The simple conversion of an individual to a joint tenancy investment account with your child.

Answer 369

An extension of time to file the income tax return (1040 etc.) automatically extends the time for filing gift tax returns. No separate form is required.

Answer 370

Would qualify for the annual exclusion because any gift to such a trust is deemed to be a gift of a present interest.

Answer 371

Competent grantor's signature There must be delivery of deed during the grantor's lifetime with an intent to gift The grantor must be competent and the deed must be delivered. Recording of deed does not affect gifting, but may affect future rights in the property. A gift can be made subject to a mortgage.

Answer 372

A 529 plan permits the donor to be the owner of the account, and thereby reserves the right to the donor, to take back the gift.

Answer 373

Gift and estate taxes have the same exemptions The two forms differ. The estate tax return is the 706. The gift tax return is the 709. There are different deductions and exclusions.

Answer 374

Only a charitable unitrust among the choices allows additional contributions. Adding assets to the trust, however, increases current income to the charity, which would only occur in a charitable lead trust where the charity is the current income beneficiary. A CRUT can also have additional contributions, but was not an available choice.

Answer 375

The remainder interest may revert to the grantor as the income for the term passes to a 501 (c)(3) charity.

Answer 376

A charitable bargain sale

Answer 377

The capital gains rate in effect at the time of the transfer.

Answer 378

Are not qualifying charitable organizations

Answer 379

The CRUT accomplishes all of these objectives. Income for parents eliminates "lead trust" and "pooled income." Control over assets eliminates CRATs. CRAT cannot provide for inflation. CRUT income can increase.

Answer 380

The CRAT requires invasion of corpus to pay annual income if there is a shortage. The CRUT does not.

Answer 381

Provide immediate income to the trust

Answer 382

A charitable lead trust

Answer 383

Both CRATs and CRUTS serve to minimize income and estate taxes while providing life income to the beneficiary.

Answer 384

A charitable pooled income fund

Answer 385

Would be the best option because the charity is the remainder beneficiary and David would be the income beneficiary. The CRAT is a better option than the CRUT because the payout from the CRAT would be a fixed dollar amount, rather than a fixed percentage. David wants a stable payout each year which would lead us to a fixed dollar amount, and thus the CRAT.

Answer 386

If a unitrust, additions to corpus may be placed in the trust

Answer 387

There is no charitable beneficiary in a GRAT and therefore no charitable tax deduction.

Answer 388

The remainder interest at the inception must be at least 10% of the net fair market value of assets contributed. Even if 7520 interest rates decline over time, a CRAT created several years ago will maintain its qualified status.

Answer 389

The principal and the principal's agent

Answer 390

The surviving spouse can be given the power to invade the entire corpus of a marital trust for an ascertainable standard Exercise, lapse or release of a general power of appointment are considered a transfer of the property by the power holder for gift, estate, and generation skipping tax purposes. The existence of a general power of appointment will cause the power holder to be considered the owner of all or part of the trust for federal estate tax purposes in the event the power holder dies. The existence, lapse, exercise, or release of a special power will not cause inclusion in the power holder's gross estate.

Answer 391

The disclaimant cannot select the ultimate beneficiary. Otherwise, he or she is still deemed to retain ownership, rendering disclaimer invalid.

Answer 392

Must be written, irrevocable and received by the executor of the estate within 9 months. It must not direct the asset and can be for any interest partial or full.

Answer 393

Fee simple ownership is not an arrangement that helps to deal with unexpected incapacity. All of the other arrangements are methods of dealing with unexpected incapacity.

Answer 394

Under which of the following circumstances would a decedent be considered to have died intestate

Answer 395

A general power of appointment that is unexercised

Answer 396

A mutual will is also referred to as a sweetheart will where both spouses leave all assets to each other.

Answer 397

Is a document used to alter a will.

Answer 398

Is a gift of real property through a will

Answer 399

Is a person who inherits property under the will.

Answer 400

Is the reduction in an estate when there is insufficient assets to satisfy all legatee provision.

Answer 401

Is a "no-contest" clause

Answer 402

One that is handwritten, signed and dated

Answer 403

Which is not valid in all states, is an oral will

Answer 404

Inventory the estate Probate the will

Answer 405

A general power of appointment

Answer 406

Applies only when the order of death is not known

Answer 407

The full value of the assets in the CRUT are included in the gross estate of the grantor (assuming he dies first).

Answer 408

The testamentary interest will not qualify for the marital deduction.

Answer 409

Allow a beneficiary to withdraw an amount contributed to the trust in a given year in order to create a gift of a present interest, thereby permitting use of the annual exclusion and/or applicable credit.

Answer 410

Bypass Trust

Answer 411

Title to the property is conveyed to the individual responsible for making annuity payments at the time of the transaction Each payment received by the annuitant is divided into gain, interest income, and a non-taxable recovery of basis.

Answer 412

The corpus value may be included in the grantor's gross estate if grantor dies before the end of the term of the GRUT. GRUTs are irrevocable and income needs to be paid out annually with the amount recalculated annually. Due to grantor status, the GRUT will be part of the gross estate if the grantor dies before the end of the trust term.

Answer 413

The CRAT but not the CRUT is subject to the probability test

Answer 414

A 2503(c) trust A trust which allows the trustee discretion to distribute or accumulate current income A trust which allows a beneficiary a limited noncumulative right to demand

Answer 415

is a simple trust

Answer 416

Allows pro-rata recognition of profits in the year payments are received. Has a fixed selling price contractually agreed to by both parties

Answer 417

Does not require annual distribution of income

Answer 418

Requires mandatory distribution of income on an annual basis

Answer 419

Is created under a Will. The assets in the trust will come from the will and therefore are generally included in the probate estate.

Answer 420

A SCIN can give the seller a collateral interest in the property sold.

Answer 421

The transferor may not be able to deduct lease payments made to a family member as ordinary and necessary business expenses. ## Footnote A fully depreciated property that is transferred by sale-leaseback to a family member can nonetheless be depreciated by the new owner The transferor of a sale-leaseback may be subject to depreciation recapture in the year of sale

Answer 422

By-pass Trust allows for this income splitting or sharing.

Answer 423

The spouse must have limited control over the QTIP.

Answer 424

A Defective Grantor Trust

Answer 425

QPRTs can hold only one residence. You may own 2 QPRTs. The donor retains all tax advantages.

Answer 426

The amount required to use the Section 6166 is that the ownership asset must make up at a minimum of 35% of the estate.

Answer 427

Redemption amounts are determined by the payment of death taxes and estate administration taxes and costs.

Answer 428

Is included in probate and is not presumed in community property states.

Answer 429

Is available only to legal and lawful spouses. Property acquired during marriage by either spouse's industry is community property. Community property cannot be transferred without the consent of all community property owners (except at death in some states). Property acquired by gift or inheritance during marriage is generally not community property.

Answer 430

A skip beneficiary is generally a person who is two or more generations younger than grantor.

Answer 431

A natural person assigned to a generation that is two or more generations below the settlor's generation, or A trust that meets either of the following conditions: All interests in the trust are held by skip persons; or No person holds an interest in the trust, and at no time after the transfer to the trust may a distribution be made to a non-skip person.

Answer 432

A person holds an interest in the trust if, at the time the determination is made, the person: Has a current right to receive income or corpus from the trust; Is a permissible current recipient of income or corpus from the trust (other than charitable entities); or Is a charitable or other entity described in section 2055(a) and the trust is a charitable remainder annuity trust, a charitable remainder unitrust, or a pooled income fund.

Answer 433

Trust does qualify for the marital deduction. However, the surviving spouse cannot be given a general power of appointment with a QTIP trust

Answer 434

An estate tax return is not required for a U.S. resident alien, unless the decedent’s gross estate, plus adjusted taxable gifts, exceeds the applicable exclusion amount ($11,580,000 for 2020)

Answer 435

If a QTIP trust is established, the donor will need to file a gift tax return to make a QTIP election.