Overall Review Flashcards
(104 cards)
1
Q
PV Calculation
A
0 CFj
1x CFj
% I/YR
NPV
2
Q
IRR Calculation (Real Rate of Return)
A
-x CFj
1x CFj
+(2x+y) CFj
IRR/YR
3
Q
Calculate NPV
A
-x CFj
1x CFj
+(2x+y)
% I/YR
NPV
(+) is good
(-) is bad
4
Q
Structured Settlement
A
No lump sum
Tax free payments
Voluntary agreement for injury
5
Q
Compensatory Charges
A
Tax free payments (interest is taxable)
Discrimination is taxable (except for medical)
6
Q
Punitive Damages
A
Taxable
wrongful death is tax free
7
Q
Leading Indicators
A
Unemployment
Manufacturing orders
Private Housing Units
Stock Prices
Consumer expectations
8
Q
Coincident Indicators
A
Personal Income
Industrial Production
9
Q
Lagging Indicators
A
Unemployment Duration
Prime Rate
Loans Outstanding
Change in CPI
10
Q
Business Cycle VS Indicators
(Recovery, Expansion, Peak)
A
Recovery: leading (up), coincident (down), lagging (down)
Expansion: leading (up), coincident (up), lagging (down)
Peak: leading (up), coincident (up), lagging (up)
11
Q
Investment Advisor Registration with SEC
A
ADV
$150 fee
ADV part 1 & Schedule 1
12
Q
Medicare Part A
A
65 and Older, or 2 years disabled
Hospital Coverage: 1-60 days (deductible 1), 61-90 (deductible 2), 91-120 days (deductible z)
Post hospital stay: 100 days skilled nursing home
Home care services
Hospice
13
Q
Medicare Part B
A
Voluntary: financed through premiums
Deductible, Medicare pays 80%, no stop loss
Includes: doctor visits, preventative care, tests, radiology, mental, blood, therapy, non-administered drugs
14
Q
Medicare Part D
A
50% Discounts on drugs
Must have A+ B
15
Q
Taxation of LTC
(premiums & benefits)
A
Premiums paid for qualified LTC: deductible as itemized medical expenses
Deductibility Limits:
days 51-60 $1,690
61-70 $4,510
Subjects to 7.5% AGT Floor (not for SE)
Benefits are NOT taxable
16
Q
Medicaid
A
New worth under $2,000
- 5 year look back rule
- Home equity up to $636,000
Offers: hospital, nursing facilities, physician, lab, x-ray, home health
17
Q
Group Life Insurance Income Tax
(Implications/Calculations)
A
(Table 1 Rate) x (Coverage over $50k)= Y
(EE Contribution) x (all coverage) = X
Y - X = EE included annual income
18
Q
Discriminatory Group Life Plans
(Key Employee Income Inclusion)
A
Key Employee includes greater of :
1. actual cost of insurance
2 cost by formula:
(Table 1 cost) x (overall coverage / 1000) x 12 months =
income to employee
19
Q
FSA
A
No FICA or FUTA tax
NO LTC
Not HSA
Use it or loose it by 12/31
20
Q
Bond Conversion Price (CP)
A
PAR / # of shares
21
Q
Bond Conversion Value (CV)
A
(PAR / CP) x stock price
22
Q
Unit Investment Trusts (UITs)
A
Unmanaged security portfolio / Passive
Self Liquidating: dividends distributed to unit holders
Units redeemed at NAV
23
Q
SD Calculation
A
E+
E+
gold Sx,Sy
24
Q
Mean Return Calculation
A
E+
E+
gold x,y
25
Geometric Return
Time Weighted Return
N= # of returns
I= ?
PV= -1
PMT = 0
FV= (1+x) x (1+y) X (1.etc..)
26
Current Yield
Annual coupon / bonds current price
27
Dividend Discount Model Shortcuts
(2 growth rates)
1. if 1st rate < 2nd growth rate
- use lower growth rate in model
- choose next LOWEST answer
2. if 1st growth rate > 2nd growth rate
- use 2nd growth rate
- choose next HIGHEST answer
28
ROE
EPS / Common Equity
29
Current Market Price
Earnings x P/E ratio
30
Dividend Payout Ratio
Common Dividend Paid / EPS
31
Stock's Yield
Dividend / stocks closing price
32
Capital Market Line (CML)
MACRO
PORTFOLIO risk/return
STANDARD DEVIATION
tangent to efficient frontier
DIVERSIFIED portfolios expected return
33
Security Market Line (SML)
MICRO
Individual Security risk/return
Above SML: undervalued
Below SML: overvalued
BETA
34
Wash Sale Rule
30 days pre, 30 days post
$ loss added to cost basis of final purchase
No loss deduction
35
Dividend Timing
Purchase Date
Ex-Dividend Date
Date of Record
*buy before ex div date to receive div
36
Margin Required
= ((1 - initial margin) / (1 - maintenance margin)) x stock price
initial margin: 50%
maintenance margin: 25%
37
Maintenance Call
shares x new stock price = $
$ x maintenance margin = Equity Required
$ - loan = Actual Equity
Equity Required - Actual Required = Maintenance Call
38
Arbitrage Pricing Theory (APT)
Unexplained changes / Unanticipated Shifts
Not explained by risk/return
Inflation, industrial production, risk premium, structure of yield
39
Black - Scholes
Valuation of Calls/Puts
Variables: prices, exercise $, time, rate volatility
increase exercise price : decreased value
all others increase : increase value
40
Binominal Option Pricing
Valuation Model
Assume stock price has 2 values at expiration
Riskless portfolio / perfect hedge
41
Hobby
Hobby income is reportable
Business if: generates profit 3/5 years
Houses: 2/7 years
42
Schedule B, C, D, E
Schedule B: ordinary dividends, taxable interest
Schedule C: business income / losses
Schedule D: capital gains / losses
Schedule E: Real Estate
43
Gross Income to Tax Due
GROSS INCOME
- for AGE deductions
AGI
- from AGI deduction
TAXABLE INCOME
x tax rate
TAX CALCULATION
- tax credits
TAX LIABILITY
- withholding penalties
TAX DUE
44
Adjustments FOR AGI
(SIEAH K/S SE)
Student loan interest ($2,500 per year)
IRA contributions
Education expense ($4,000)
Alimony
HSA
Keogh / SEP
SE Tax (0.07065) and medical premiums 100%
45
Adjustments FROM AGI
Itemized Deductions
(MMCCTI)
Medical expenses over 7.5% AGI
Mortgage Interest
Causality Losses
Charitable Deductions
Taxes ($10,000)
Investment Interest
46
Medicare Taxes
under $200k wage: 1.45%
over $200k wage: 2.35%
plus 3.8% on investment income from LTCGs and non-qualified dividends
47
Dependent Care Tax Credit
Under 13 years old
$3,000 for 1 child
$6,000 for 2+
times 20% for credit
EX:
- $6,000 x 20% = $1,200
- $3,000 x 20% = $600
48
Child Tax Credit
$2,000 for each child under 17
- reduced $50 for each$1,000 over $400k
- up to $1,400
$500 Family Credit: dependent adults
49
Adoption Credit
$14,890 pre child
50
Installment Sales
Deferred gain for seller
Profit / Sale price = profit %
instilment payment x profit % = Gain
51
Sole Proprietorship
Advantages:
- Keogh, SEP
- 100% medical plan deduction
- no legal formalities
- conduit of income and loss
- schedule C
Disadvantages:
- unlimited liability
- business dies with owner
- capital structure depends on owners assets
52
Partnership
Advantages:
-Keogh, SEP
- 100% medical plan deduction
- conduit of income and loss
- agreement can be oral
Disadvantages:
- unlimited personal liability
- Dissolves upon death/bankruptcy
- capital structure is owners resource
53
LLC
Partnership or Corporation
Can operate like a general partnership
20% income deduction if they have QBI with pass through entity
54
C Corp
Separate tax entity
Double taxation:
1. distribution to owners
2. owners taxed income
Advantages:
- Unlimited investors
- dividend reduction (50%)
- limited liability
- continuity of life
Disadvantages:
- corporate formalities
- after tax dividends
- double taxation
55
Dividend Received Deduction
US Corp invested in US Corp
0-20% ownership: 50% dividend deduction
20-80% ownership: 65% dividend deduction
80-100% ownership: 100% dividend deduction
56
Section 1244 Qualified Small Stock
C or S Corp < $1mm market cap
Loss of $100k (joint): ordinary loss
Loss of $50k (single): ordinary loss
57
Personal Service Corporation (PSC)
HALE:
- Health
- Accounting, Architects, Actors
- Law
- Engineers
Taxes at flat 21% rate
58
S Corp
CONDUIT:
- 100 or less share holders (individuals, estate, trusts)
- single class of stock
- domestic Corp
Advantage:
- limited liability
- conduit
- basis is cash and direct loans (no bank)
Disadvantage:
- corporate formality
-sale of stock: limited eligibility
59
Business Selection
PROFITABLE:
- C Corp
- PSC
LOSSES:
Riskless:
-Sole Proprietorship
- Partnership
Risky:
- S Corp
- LLC
- LP
60
MARCS / Straight-Line
Depreciation %
MARCS:
- 5yr: 20%, 32%
- 7yr: 14.29%, 24.49%
Straight-Line:
- 5yr: 10%, 20%
- 7yr: 7.14%, 14.29%
61
Realized Gain
(FMV acquired + boot) - Basis of property
62
Recognized Gain
lessor of realized or boot received
63
Substitute Basis
FMV acquired - (realized - recognized)
64
Charitable Bargain Sales
(Sales price / FMV) x basis = adjusted basis
Sales price - adjusted basis = taxable gain
FMV - Price Paid = Gift
65
Passive Activites
Does not materially participate
Passive losses only offset other passive income (schedule E)
Passive Activities:
1. Rentals
2. Business: non-material
- limited partnership
- partnership/S-Corp
66
Public Traded Partnership (PTP)
(loss/income)
PTP Loss: NO NETTING
PTP income: portfolio income
67
Non-Public Trade Partnership (PAL/PIG)
(loss/income)
PALs loss taken up to income from PIGs
68
Rental vs Residence
Treated as residence if used: the greater of
1. 14 days
2. 10% of rental days
69
Alimony Recapture
P1 + P2 - $37,500 =
or
P1 + P2 - 2P3 - $37,500 =
70
SS Fully Insured
40 Qs of coverage
survivor and retirement benefits
71
Taxation of SS benefits
Income plus 1/2 SS benefits
- income includes muni interest
50%, 85% SS taxed
Single: $25k, $34k
MFJ: $32k, $44k
72
Ratio % Test
NHCEs / # HCEs = or > 70%
73
Average Benefits Test
AB% NHCEs / AB % HCEs = or > 70%
74
Minimum Participation
(50/40)
Lessor of:
50 employees
40% employees
75
Top Heavy Plans
aggregate benefits allocated to KEY employees > 60%
76
ADP / ACP Testing
(Employer Matching)
NHCE 0-2%, HCE times 2
NHCE 2-8%, HCE plus 2%
77
Inherited IRA (Roth) Distributions
No bene: 5 yrs from owners death
Bene: 10 yrs from owners death
Spouse:
1. until deceased would have turned 72
2. Roll over to spousal IRA
78
RMD Calculation & Penalty
Prior year balance/ this year age uniform table = RMD
50% penalty for amount under withdrawn
79
Totten Trust
Recoverable trust in bank account
Depositor retains rights of withdrawal until death
Balance passes to beneficiary
80
Gross Estate to Net Estate Tax
GROSS ESTATE
- expenses, admin, debts, taxes, causality
ADJUSTED GROSS ESTATE
- marital and charitable deduction
TAXABLE ESTATE
+ taxable gifts
TAX BASE
- tax deduction ($12,060,000)
X remainder at 40%
TENTATIVE TAX
- gift taxes paid
NET ESTATE TAX
81
3 Year Rule
(added back to GE)
Made within 3 years of death
1. transfers of Life Insurance
2. Gift Tax Paid (not GSTT)
82
Survivorship Annuties
Included in Gross Estate
Right to lumpsum: annuity full value
Periodic Payments: PV of future payments
83
Powers vs Gift & Estate Tax
Special/Ascertainable (HEMS): No Gift or Estate Tax
General Power no 5/5: Gift and Estate Tax
General Power with5/5: Estate Tax only
84
Gift of Future Interest
Future Interest does not count for the $16k annual exclusion (taxable gain in full)
Exceptions:
- to trust for minor
- 2503 (c)
- Crummy Trust
-529 Plans
85
Gifts to Noncitizen Spouse
$164,000 exclusion
No marital gift exclusion
86
Gift Tax Paid by Donor
For appreciated gift, tax increases basis
87
Gifts with Debt
FMV - Debt = Gift
Debt - Basis = Capital Gain
Basis + Gain = Donee Basis
88
Medicaid Planning
Income and Assets ($2,000) under limits
Prohibited if given way money within 5 years of incurring nursing home expenses
$ given away / cost of nursing home monthly = # of months Medicaid will NOT cover
89
A Trusts
2nd to die controls property
Marital Trusts
Power of Appointment
Spousal Trust
90
B Trusts
1st spouse to die controls property
Fully Fill
Non-marital trust
Credit Shelter Trust
Unified Credit Trust
Family trust
Bypass Trust
Dynasty Trust
91
C Trusts
1st to die controls property
QTIP
Current Interest Trust
92
Gifts to Minors
(Future vs Present Interest)
FUTURE: 2503(b)
PRESENT:
-2503(c)
- 529
Subject to Kiddie tax:
- UGMA
-UTMA
93
2053(b) vs 2053 (c)
2053(b)
- Investment: income producing
- Transferred: mandatory income distribution, corpus no mandatory
- Gift Tax: future interest, income is present interest
- Taxation: subject to kiddie tax if under 24
2053(c)
- Investment: any
- Transferred: principal at 21 or sooner
- Gift Tax: present interest
- Taxation: trust tax rules
94
Sprinkling Provision
trustee has power with DISCRETION to distribute income to bene
95
Discretionary Provision
only as much income or principal to bene as trustee SEES FIT
96
Support Trust
deems necessary for support or education of bene
97
Charitable Transfer
(income to donor)
Trusts: 5%, any charity
- CRAT: fixed payment, no additions
- CRUT: variable payments, additions allowed
Specific Charity:
- Pooled Income: charity controlled, variable payments, additions allowed
- Charitable Gift Annuity: fixed payments, no additions
98
Charitable Transfer
(income to charity)
Trusts: 0%, income/estate tax deduction
- CLAT/CLUT
Private Foundation: 5%
99
Donee Pays Gift Tax Formula
exhaust $12,060,000
1. amount over $16k x 40% = Y
2. Y / 1.40 = $ gift tax paid by donee
3. amount over $16k - $ gift tax paid by donee = Adjusted Gift
100
Intra-Family & Business Transfers
Owner needs income (PIGs)
- Private Annuity
- Installment Sale
- GRAT/GRUT
- Self Cancelling Installment Note
-GRIT: no family members
Income to Family:
- Partnership / S Corp
- FLP
- Gift Leaseback
- QPRT
101
Direct Skip
Transferor pays gift tax
102
Taxable Terminations
termination of nonskip person interest, result in skip person receiving income/principal
- Gift of future interest (no $16k)
- Trustee pays GSTT
103
Taxable Distributions
distribution out of a trust to skip person
- Future interest (no $16k)
- Transferee pays GSTT
104
Post Mortem Elections
ESTATE LIQUIDITY:
- Section 303 Stock Redemption
- Installment Payment of Estate Taxes (6166)
ESTATE TAX REDUCTION
- Special Use Valuation (2032 A)
