Wrong Answer Cards Flashcards
(92 cards)
1
Q
Liquid Assets
A
-ETFs, MFs, and Government bond funds are NOT considered liquid.
-CDs and MMFs are!
2
Q
Beta
A
- Measures systematic risk (not total risk)
- Beta of 2 is 100% more volatile than average stock
- Expresses volatility (not variability)
3
Q
Duration
A
- Inverse relationship with interest rates!
- Interest rates go up, duration goes down
- Smaller the coupon, more volatile price
- Longer the duration, more volatile price
4
Q
Who’s most likely to buy STRIPS?
A
Pension plan because they’re tax deferred!
(Zero coupon bonds)
5
Q
Bond Put Features
A
Bonds can be redeemed back to issuer at face value even when market value has declined
6
Q
HPR (Holding Period Return)
A
YOU DONT HAVE TO SELL THE STOCK TO CALCULATE IT
7
Q
When must an individual file and income tax return for self-employment?
A
An individual is required to file if net earnings from self-employment are at least $400
8
Q
Which form is used to amend a tax return?
A
1040X
9
Q
Student loan interest deductibility
A
Limited to $2,500. Deductible on Schedule 1
Above the line!
10
Q
When is alimony included in an adjusted gross income?
A
If divorced before 2019
11
Q
Who can’t use NOL? (net Operating losses)
A
S-Corps because they are pass through entities.
12
Q
Deduction for Federally Declared Disaster
A
Lessor of FMV or Basis
Minus: Amount reimbursed by insurance
Minus: $100 floor
Minus: 10% of AGI
13
Q
GPs & LPs - Passive or Active income?
A
GPs are ACTIVE.
LPs are typically passive.
14
Q
ISO’s tax deductible?
A
- yes if the ISO is disqualified
- Exercise Price would be treated as compensation
- holder would need to sell before the two year/one year holding period
15
Q
Alimony Recapture Rules
A
- if alimony payments decrease or end during the first three calendar years, you may be subject to recapture rule
-You have to include income in the third year part of the alimony payments you previously deducted
- if payment in 3rd year decreases by more than $15k from 2nd year or if payment in 2nd and 3rd year are significantly lower than 1st
- $37,500 is the constant (for example, $70k (between yr 1 & 2) - constant of $37.5k = $32.5k recapture)
16
Q
Workers Comp Includes
A
1) medical care
2) disability income
3) rehab rehabilitation benefits
Received tax-free
17
Q
Charitable Gifts
A
- If under $250, dated receipt required
- If over $250, written acknowledgment from charity
- deduction is lessor of FMV or basis for items and shit
18
Q
Real Return
A
- Spread between rates and inflation
19
Q
AMT Paid & Basis (ISO)
A
If AMT is paid, basis is increased by amount paid.
20
Q
Dividend Received Deduction (C-Corp)
A
- if own 20% or less = 50% div deduction
- 20%-80% = 65% div ded
- more than 80% = 100% div ded
21
Q
QBI
A
- for pass through entities only
- 20% deduction on earnings
Single: $191k - $241
Married: $382k - $482
- Phaseouts for PSC
22
Q
Section 1244
A
- Qualified Small Biz Stock
- for S or C-Corp only!
- if capitalized with less than $1M
- Loss of $100k/yr (JT) or $50k/yr (S) is ordinary loss (not capital)
23
Q
Tax Filing!
A
- Self Employed: Schedule C
- Partnership: 1065
- S Corp: 1120S
- Corporation: 1120
24
Q
179 Deduction (Section 1245 property only!!!! Non-RE)
A
- Biz can expense up to $1.22M of qualifying property in year of acquisition
- Reduced dollar for dollar by cost of qualifying property
- LOSS CANT BE CREATED
- can be carried into future years though
25
PTP Rules
- Publicly/nonpublicly traded partnerships
26
$25k Loss from Real Estate Activity
- May deduct up to $25k/yr of net losses from real estate activity
- Phased out for tax payers between $100k and $150k
27
Tax Free Rental Income
- If primary home is rented out for less than 15 days a year its tax free!
28
Renting Vacation Home
- treated as residence if owner uses it more than longer of 14 days or 10% of rental days.
29
Social Security Disability IF
- under 65 and:
1) disabled for 12 mths
2) expected to be for 12 mths
3) expecting to result in death and waited 5 mths
30
Spouse Eligibility SS
- Over 62
- Under 62 and:
1) child under 16
2) child over 16 w/ disability before 22
- Surviving spouse can take at 60 (if surviving and child under 16, can take at any age)
- Divorced spouse must have been married for 10 yrs and can’t be remarried
31
Dependent SS
- Surviving dependent of deceased, disabled or retired worker qualifies if:
1) under 19 and Ft student
2) 18+ and disabled before 22
32
Working after SS
If before FRA, reduce benefits $1 for every $2 above $22,320.
If FRA, reduce benefits by $1 for every $3 above $59,520.
33
Taxation of SS
- If MAGI + 1/2 of SS above $25k (Single) or $32k (MFJ), tax up to 50% of benefit
- If MAGI + 1/2 of SS above $34k (S) or $44k (MFJ), tax up to 85% of benefit
34
Money Purchase Pension Plan
- Benefit formula requiring annual employer contribution that is a FLAT percentage of each eligible employee’s comp
- For YOUNG and HIGHLY paid
- only first $345k taken into account
- GUARANTEES %, not return
- Employer can contribute up to 100% of comp, but can only deduct 25%
35
Target Benefit Pension Plan
- Similar to a DB plan… but it’s a DC (lower cost and simplistic)
- Favors older!
- Actuary determines initial contribution level (but never again)
- Fixed mandatory contribution
- EMPLOYEE assumes investment risk
36
Profit Sharing
- UP TO 25% in comp
- Flexible contributions
- Discretionary, can be nothing at all
- Substantial and recurring
- YOUNG and Well paid, motivate to work hard
37
Solo 401(k) / Uni 401(k)
- Not subject to non discrimination and testing
- Allowed for owner, spouse or two partners
38
Safe Harbor 401k
- Auto satisfies non discrimination testing w/ either:
1) Employer match ($1/$1 for first 3% and then $0.50/$1 on next 2% - up to 4%)
2) Non-elective contribution - 3% to all!
- Immediately vested too!
39
ESOP & Stock Bonus
- Form of Profit Sharing plan
- Stock plan MAY invest in employer stock and an ESOP MUST invest assets primarily in employer stock
- Use to broaden ownership or give sense of ownership
- An ESOP participant with over 10 years and >55 can diversify up to 50% of acct balance (three alternatives offered)
40
412(i) Plan
- funded by life insurance
- Defined benefit plan
- insurance actuary determines contribution due
- For employers w/ need for LI
- Less growth, larger contributions
41
Coverage Requirements
1) Ratio Percentage Test: plan must cover % of NHCE that is at least 70% of HCE covered!
If that fails, this must pass…
2) Average Benefits Test: average benefit for all NHCE is at least 70% of those for HCE
42
Minimum Participation (DB Plans Only)
In addition to coverage requirements…. (70 and 70)
DB plan must benefit AT LEAST the lessor of:
50 employees or
Greater of 40% of all eligible employees or 2 employees
43
Highly Comped Employees HCE
1) $155k > (in preceding year)
2) Greater than 5% owner
44
Key Employees
1) Greater than 5% owner
2) Greater than 1% + comp >$155k
3) Officer w/ comp >$220k
45
Top Heavy Plan
>60% of aggregate benefit are allocated to KEY employees
Top heavy plans must provide minimum benefits!
DB plans - 2% of comp x number of years which were top heavy
DC plans -no less than 3% of comp
46
Vesting Schedule
FAST:
- DC Plans & Top-Heavy DB Plans
- 3 yr cliff
- 2 to 6 graded
- 2 yr, 100%
SLOW:
- non top heavy DB
- 5 yr cliff
- 3 to 7 grader
- 100%, 2 yr
47
ADP/ACP Testing
- Nondiscrimination Testing
- 0 to 2% is “Times 2”
- 2 to 8% is “Plus 2”
Ex: NHCE defers 4%, HCE can only defer 6%.
48
Control Groups
- Related Employers… can’t max out separate plans! Boooo (limited to $69k or lessor earned comp)
- $69k allowed per account if SEPARATE employers…
1) Parent Subsidiary- owns 80% of company
2) Brother sister- five or fewer owners of two or more entities own 80% or more.
3) Affiliated groups- service orgs HALE
49
SS Taxable Wage
$168,600
Not taxed for SS above that.. but Medicare, yes!
Medicare is 2.9% combined.
15.3% for both!
50
Contribution = Employer
Deferral = Employee
51
Keogh Plan
- Qualified plan for sole prop or partnerships
- Can be DB or DC
***Self Employed Contribution:
- If 15%, then 12.12%!!
- If 25%, then 18.59%!!!
Multiply by net income and that’s your max contribution hehe
52
Hardship Withdrawals
ONLY 401k
53
ABLE Accounts
- $18k/yr, (annual gift) disabled before 26
- Tax advantaged
- Exempt from $2k limit on personal assets for Medicaid
54
SEP
- Lessor of 25% of comp ($345k) or $69k
- Like profit sharing that is easy and cheap
- Same percentage as owners
- DOES NOT have to be substantial and recurring
- Age 21, 3/5 years and makes $750
55
Salary Reduction Vs Salary Continuation
- Both NQDC
- SR uses employees current comp to fund benefit..
- continuation is employer funded
56
Secular Trust
- Irrev trust established exclusively for benefit of employee
- beyond reach of creditors
- security!
- no forfeiture risk but taxed now
Rabbi trust is similar but creditors can tap into it!
57
Unfunded Plans (NQDC)
- To maintain deferral, must be unfunded
- Unfunded:
1) Naked Promise (mere promise)
2) Informally Funded (life insurance, annuities, mutual funds or other investments) - subject to creditors
- No tax deductions for company until benefits received!
- Employees taxed when constructive receipt or benefit has been received
58
ESPP
- Employer can discount stock up to 15%
- Taxes paid at sale of stock
- Similar to ISO (tax)
59
Principle of Indemnity
- Insurer seeks to reimburse insured for amount lost!
- No more, no less
These support indemnity:
1) Insurable interest
2) Actual cash value
3) Other insurance
4) Subrogation
60
Parts of Insurance Contract
DDICE
61
Disability Insurance Payout
Approx 50% - 60% of earnings!
Can add group disability to improve.
62
Rating Companies
- Only AM Best provides detailed historical data on insurance carriers (others provide ratings)
• AM Best = A++ to F
• Standard & Poor = AAA to CCC
• Moody’s = Aaa to C
• Weiss = A+ to F
63
Auto Insurance
A - Liability: bodily injury and property damage (BI/PD)
B - Medical Payments: reasonable and necessary med payments of insured (only within 3 years)
C - Uninsured Motorist Coverage: pays if other doesn’t have insurance
D - Damage to auto: collision & other than collision (break glass, missiles, falling objects, fire, theft, flood, earthquake, windstorm, vandalism, animal bird, explosion)
64
Medicare Part A
- Hospital Insurance
- Disabled and receiving benefits for 2 years is eligible
- Hospital stay deductible for first 60 days, again for 30 days and again for next 60 days (150 limit)
- Post hospital skilled care of 100 days (first 20, then part of next 80)
- unlimited post hospital home health services
- Hospice care for terminally ill
- Patient pays for first three pints of blood
- Services can’t be outside US
65
Medicare Part B
- Medical
- Voluntary
- Monthly premiums
- Deductible paid first! Then, Medicare pays 80% of balance of approved charges
- No stop loss so significant exposure to expenses
- Doctors service, diagnostic tests, radiology, transfusion, mental illness, Pt, outpatient services, preventative care
- NO DENTAL, HEARING, VISION, IMMUNIZATION (except flu), DRUGS
66
Medicare Part D
- Drug manufacturers provide 50% discount
- MUST have A & B
- Donut hole is real
- Based on IRMAA
67
Medigap
- Must have A&B!
- Pay deductibles and coinsurance for A&B..
68
COBRA
- If disabled, can extend to 29 months
- Cost can’t exceed 102%
69
Disability - Taxation of Premiums & Benefits
70
Qualified LTC Premiums & Expenses
- If unreimbursed, qual LTC expenses and premiums are deductible as itemized deduction (below line)
- Limited to:
1) $1,760 if age 51-60
2) $4,710 if age 61-70
Subject to 7.5% of AGI floor
- HSA can be used to pay/reimburse, but FSA cant
71
Medicaid
- Less than $2k in countable assets (both income and assets)
- 5 yr look back period
72
73
CFP(r) Nouns
- Certificant
- Practitioner
- Professional
- Certification
- Mark
- Exam
74
Dividend Options
1) Cash
2) Reduce premium
3) Accumulate with interest (taxable)
4) Paid up additions
5) One year term insurance (5th dividend)
75
Nonforfeiture Options
1) Note - 6mth delay clause to distribute cash value
2) Paid up term insurance - uses cash value to pay for policy, when done, lapses
3) Cash option - surrendered for cash value
4) Reduced benefit - no addition benefit, smaller premium
76
Viatical
- Must be terminally ill (reasonably expected to die within 24 months of date of certification)
77
Life Settlement
- Not terminally ill! (Or chronically ill)
- Generally over age 65
- Tax free basis!! (Premium paid)
- Ordinary income from basis to policy’s cash surrender value
- Long term capital gains from higher of cash surrender to net settlement amount
78
MEC
If DB increases by more than $150k, contract becomes subject to material change and can lose grandfathered status.
If has to prove insurability, MEC.
79
Group Life
Premium Amount >$50k is taxable to employee
Subtract amount paid by employee on ALL (including $50k)
Premium deductible by employer.
80
IRC Section 162 Bonus Plan (Life)
Employer deducts premiums.
Employee receives as taxable income.
81
Disability Benefits
- Typically, employer pays and deducts premiums
- Benefits received as taxable income
- if employee pays for any, it’s tax free
82
Section 125 Cafeteria Plan
- Employee choose benefits they want!
- must offer cash option
- FSA (no FICA or FUTA)
- Health FSA ($3,200 max) - maintain $640 year over year or grace period of 2.5 but not both
83
VEBA (Voluntary Employees Bene Association)
- DB
- Medical Expenses
- Disability bene
- Legal expense
- Unemployment
- Child care
- Severance
- Education
NO DEFERRED COMP
NO RETIREMENT
84
Systematic Risk
1) P - purchasing power: inflation fucks you
2) R - reinvestment: proceeds reinvested at lower interest rates
3) I - interest rate risk: market value falls due to increased rates
4) M - market risk: overall market
5) E - exchange rate risk
85
Bond Risks
DRIP: default, reinvestment, interest, purchasing power
Of government bond, only RIP
86
Private Placement
- 35 non accredited investors (must be sophisticated)
- Unlimited accredited investors
1) NW of $1M
2) Single w/ $200k income
3) Joint w/ $300k income
87
Beta vs SD
88
Markowitz
- portfolio selection along the Efficient frontier :)
- ER and Risk (standard deviation)
89
Capital Market Line (CML)
- Relationship between risk (SD) and return on PORTFOLIO
- is a straight line tangent to markowitz frontier
- Portfolio of risk free assets and risky assets
90
Security Market Line (SML)
- relationship between risk and return for one asset (micro)
- CAPM formula or r = Rf + (Erm - Rf)b
- Market risk premium: Erm - Rf
- Stock risk premium: (Erm - Rf)b
91
EMH
- Passive, can’t outperform market consistently
- random walk means that price changes are unpredictable and patterns are accidental
1) Strong: all info (public and private) accounted for. NO fundamental or technical. NO insider.
2) Semi: insider information can give you an edge. NO technical or fundamental
3) Weak: FUNDAMENTAL analysis may provide better results
92
Ed dividend dates
- To be listed as investor, must purchase stock BEFORE ex dividend date.
- Date of record is day after…
- watch for weekends/holidays
- T+1
- Buy Day before ex dividend, own by ex dividend, date of record get paid
