Things I Need To Know Flashcards
(104 cards)
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
2
Q
Charitable Transfers - giving to charity first
A
- CLAT / CLUT (5%)
- Private Foundations (5%)
L -losers giving to charity before family
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
4
Q
Pooled Income Fund
A
- trust fund operated by charity
- commingled with other contrbtns
- additions allowed
- payable to 1 charity
5
Q
Charitable Gift Annuity
A
- no additions
- fixed lifetime income
- 1 charity rcvs now
- charitable deduction based on gift less AN
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
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
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
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
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)
11
Q
Intrafamily Transfer where donor DOES NOT need income
A
- partnership / S Corp
- Family LP
- Gift Leaseback
- Q Personal Residence Trust
12
Q
Installment Sale
A
- PV of remaining pymts included in estate
- pprty secured
- gain in capital (do not use if 1245 dep asset)
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
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
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
16
Q
Difference between GRAT / GRUT?
A
in a GRUT the payout is % (fixed) is based on the assets revalued every year
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
18
Q
Family LP
A
- to reduce estate
- GP maintains control
- “valuation discounts” to lower gift tax
19
Q
Gift Leaseback
A
- gift of fully depreciated pprty
- lease pymts are biz ded; income to family member
- <24 - not good! K-Tx
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
21
Q
GSTT - Generation Skipping Transfer
A
- flat tax 40%
- Skip person 2 generations younger
or unrelated 37.5 yrs younger - same $$ as Gift tax
($12.92 MM / $17k annual)
22
Q
Alternative Valuation Date (AVD)
A
- FMV 6 mos after
- must cause a reduction in total value of G estate
- fed tax liability must be reduced as a result
23
Q
Disclaimer Trust (simple)
A
spouse can disclaim pprty and still receive income
24
Q
Unsystematic Risk
A
= Total Risk
Includes:
- biz risk - bad mgmt
- financial risk - heavy debt
Risk you can undo w/diversification
25
Systematic Risk
AKA: nondiversifiable risk
CANNOT AVOID
P.R.I.M.E.
Could be called Beta
26
Point on CDs
Do not have i rate risk
27
HPR for Bonds
[Bond's Mkt Price + Cpn - Purchase Price]
divided by Purchase Price
28
Current Yield for Bonds
Annual i in $$
divided by
Mkt Price
29
Selling Price of Bond
Annual i in $$
divided by
Current Yield
30
Phanton Income
- must pay taxes even when not received
- remember it adds to basis!!!!!!
31
Tax on T-Bills, Notes and bonds
No state or local income tax on interest
FYI: RIP for risks (no default risk)
32
Difference between EE bonds and I bonds?
Phantom income and inflation on I
33
Risk on Mtg Backed securities?
Anything with an "F" in it you could technically lose your money but won't
FNMA, FHLMC, FHA
*GNMA backed by gov't
34
DRIP
Risks assoc with Corp and Muni bonds
35
Intrinsic Value on Real Estate (Apt Complex)
Gross Rentals
- nonrental income
= Potential Gross Inc
- vacancy & collection losses
- operating expenses
= NOI (CF)
THEN divide by capitalization rate
for IV of pprty
36
Intrinsic Value of Option
- minimum price will command as an option
IV = MP - EP
37
Exercise Price of Option
AKA Strike Price
- price at which stock can be B/S
38
Premium of Option
- cost of the option
- Buyes pay prems to sellers
- As approaches expiration, MP gets close to IV
39
Time Premium of an option
Amount by which MP > IV
40
In the Money
IV is positive
MP - EP = +
41
Out of the Money
Cannot be negative but if the answer is negative must be = 0
MP - EP = - or 0
42
Put Options
Think: Put Down - bearish
- holder right to sell
- bearish
- writer = bullish; wants prem $ therefore believe won't be exercised
43
Protective Put
Owns stock
- put acts as insurance against a decline
- long position
44
Short Selling
- 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
Futures - Long
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
Futures - Short
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
Collectibles
Fine arts & Coins, etc...
- Taxed @ 28%
48
Zero Coupons Bonds
- 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
Private Placement
Reg D
- Remember 1-2-3 test
- $1MM NW (not home); $200k S; $300k J
- Non-accredited 35 sophisticated investors
50
Covariance
COV ij = Corr Coeff x SD x SD
- measures extent to which price movements are related to each other
51
Correlation Coefficient
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
Coefficient of Variation (CV)
- 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
Calculate Avg and SD on calculator
E+ then gold 7 (x,y) gold 8 (Sx,Sy)
54
Standard Deviation
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
Beta
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
Real Rate
Nominal Rate adjusted for inflation
= [(1 + ROR / 1 + inf)-1] x 100
57
Geometric Mean
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
Dollar Weighted Return
Factors CFs - absolute $ amounts
changes in total $ value treating additions and w/ds of capital as part of return along w/G/Ls
59
Time Weighted factors?
Factors % - manager comparisons
60
HPR (Stock)
Appreciation
divided by
Out of Pocket cost
Must separate out the margin amount and i
61
Immunization
- passive investment strategy
- immunized if avg D of the bonds = pre-selected time horizon
62
Efficient Frontier (Markowitz)
- on the curve = optimal
- inefficient but feasible if below the curve
- unattainable if above the curve
63
Indifference Curve
to select the expected return-risk that will satisfy an investor's personal preference
- Steep Curve - high risk
- Flat Curve - risk averse
64
Capital Mkt Line
- 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
Security Mkt Line
risk and return for one asset
r = Rf + (Erm - Rf)B
66
Mkt Risk Premium
= (Erm - Rf)
Part of CAPM
67
Stock Risk Prem
= (Erm - Rf)B
68
Efficient Market Hypothesis
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
R Squared
1. Look for high R2 = 60+ then diversified portfolio
2. Look for highest possible alpha, if not given, look for highest Treynor
70
Jensen (alpha) / Treynor Concept
- Risk measured in terms of B
- Systematic risk only
R2 60+ then diversified
<60 highest alpha or treynor
71
Sharpe Concept
- 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
X Div Date
to be a holder of record, must purchase before ex-div date.
Purchase - Ed-Div - Record
(Bus Days only!!)
73
Margin Requirement
[(1 + margin) / (1+maint margin)] x Purchase price
74
Active Strategies
- Tactical asset allocation
- Dow Theory
75
IRC
Primary source of all tax law
76
Treasury Regs
a source of tax law
77
Revenue rulings & revenue procedures
admin interpretation/ may be cited as precedent
78
Congressional Committee Reports
indicate intent of congress
- may not be cited as precedent
79
Private Letter Rulings
applies to specific taxpayer and situation
80
Judicial Sources
Court decision interpret law/facts
81
Frivolous Return Penalty
$5000
82
Negligence
20% penalty
of portion underpaid
83
Civil Fraud
75% penalty of underpayment attributed to fraud
84
Failure to File
5% of the tax due per month with a max of 25%
85
Failure to Pay
.5% per month; max 25% (pay-point .5%)
86
Estimated Tax Due
90% of Current
(or)
100% of prior
(110% if exceeded $150k)
87
Gross Income Inclusions
- 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
Adjustments for AGI
"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
Tax Credits (after taxable income computed)
90
Standard Deductions
- Reduces AGI
-Extra Stand Ded for 65 or older and blind $1500 (MFJ) $1850 (S)
"BELOW THE LINE"
91
Itemized Deductions (Schedule 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
Investment Interest Deduction
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
Casualty and Theft Losses
- 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
Home Office Deduction
- 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
Meals & Entertainment
- 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
Personal and Dependency Deductions
SUSPENDED
97
Kiddie Tax (Unearned Income)
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
Calculation for Earned and Unearned Income for a Child
Standard deduction is the greater of $1250 (or) earned income + $400, but no more than the single person standard deduction
99
Activities Subject to Self-Employment Tax
(in addition to SE Income)
- 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
Self-Employment Income
- "NET" Schedule C income
- GP income (K-1)
- Board of Directors fees
- PT Earnings 1099
101
Calculation for SE Tax
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
FICA Tax
(Fed Ins Contribution Act)
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
Credit for Child and Dependent Care Expenses (until 13)
- nonrefundable
- $3000 limit for one, $6k per family
USE 20% OF THE ALLOWABLE CREDIT ON THE EXAM
104
Child Tax Credit
$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)
