Final UGBA 135
Proprietorship
A business owned solely by one person -if the owner dies the business dies -Owner has unlimited persona liability and many need to purchase liability insurance to protect his or her assets -Profits taxed at ordinary individual tax rates -Losses may be used to reduced taxable income -File schedule c
Disability Insurance
A form of income replacement that pays an insured person an income when that person is unable to work because of an accident or illness for at least a year. -Only if you are employed -Only applies to earn income and not unearned income -Not a form of worker's compensation
High Deductible Health Plan (HDHP)
Higher annual deductible plans. -HDHP Minimum Deductible single ($1,400) Family ($2,800) -HDHP Maximum Eligible Out-of-Pockets single($7,050) Family ($14,100)
FRED RULE
I get Paid First
Bid vs Ask
Bid: The highest price a buyer is willing to pay at that very instant in time Ask or offer: The lowest price a seller is willing to sell at that very instant in time
What is the difference between a bond selling at a discount or at a premium?
Bond premium: The amount above face value the bond is valued at in the marketplace -Part of the premium can be deducted each year that you own the bond for tax purposes since the amount you will receive on the maturity date will be lower than your cost and create a loss Bond discount: The amount below face value the bond is valued at in the marketplace -Reported as taxable income for each year you own the bond
Is the principal payments taxable of a rental property?
No, principal payments which reduce the amount of the loan are not tax deductible.
Is it good owning bonds during periods of inflation?
No, the greatest dangers for bond investors are rising interest rates and inflation. When interest rates go up, the value of bonds being held goes down. When inflation is high, you will receive the full-face value of a bond at maturity, but the dollars you receive will likely have less purchasing power.
What is the best time to bring up finance?
Once you have negotiated the best possible price for the car. -The dealer also wants to sell you financing and insurance for the extra fees and commissions
When is the best time to let them know you have a trade-in?
Once you have settled on the new car's price it is time to deal with the trade-in.
How do we define an above average dividend?
One that provides a current yield greater than the interest rate on a 10-year treasury bond
What are you responsible during the term of the lease?
Responsible for insurance, regular maintenance, and repairs not covered by a warranty or maintenance contract
Residual value
The predetermined value and purchase price of the car at the end of the lease, the market value of the car when the lease terminates. -It is as important as the capitalized cost of the vehicle -Not negotiable when leasing
Capitalized cost ("cap" cost)
The price you and the dealer agree upon for the car to be valued at the time of the lease
Fred's Law
The price you pay is inversely related to the amount of the salesperson's time you waste.
Who pays the real estate commission or fee, the buyer of seller of the property?
The seller
Limit Order
The specific price you set at which you are willing to either buy or sell a stock, no more/no less. A limit order does not limit losses -Limit order to buy you se the highest price you are willing to buy -Limit order to sell, you set the lowest price you are willing to sell
Mutual fund net asset value (NAV)
The total value of the fund's holdings (including cash) is divided by the number of the fund's shares outstanding at that time. The NAV is posted once a day after the market closes.
Is there a tax cut if you sell a house for a loss?
There is no loss for tax purposes.
Co-payment or co-insurance
These represents the share if the bill that you pay after you have met your deductible, with insurance paying the rest up to the policy's limit. -Co-payment is the amount paid at the time of the visit -Co-insurance is the percentage amount pay under major medical insurance after the deductible is met -The higher the co-payment or the co-insurance percentage, the lower the premium or policy cost
What do ideas cost?
They are free
What is the big tax rate if you sell a house with a profit?
They can exempt from taxes the profits they make up to $250,000 for a single person or $500,000 for a married couple if they lived in the house any two of the prior five years as their primary residence. Cost basis = Original cost + permanent improvements - adjusted cost basis
Why do most people buy term insurance and use a 401k to provide for their retirement?
They prefer to this than to buy a whole life insurance because it gives them the ability to manage their investments themselves.
Lien
This a process whereby the property becomes security for the payment of a debt, but unlike a mortgage, the filer of the lien does not have the power to force the sale or take possession of the property. -Ex: Contractor makes repairs and owner fails to pay all property taxes and assessments -Title to the property may not be transferred until all liens are paid
First mortgage
This is the mortgage that has first claim on the property in the even of a default or the sale of the property
The depreciation number for rental vs commercial property
commercial --> 39 years rental --> 27.5
Title Search and Title Insurance
guarantees clear ownership of a property to buyers and lenders. You do not want to buy a house from a party who does not own the house.
Who is able to get Medicare?
-65+ -Kidney disease -If you have been under the social security disability insurance for more than 2 years, regards the age
Taxes on interest received
- interest from savings accounts, CDs, money market funds, bonds are taxed as ordinary income
Are social security benefits taxable? Taxable income?
-$25,000 - $34,000 (50% taxable) -More than $34,000 (85% taxable)
What is the maximum individual tax rate?
-10% -12% -22% -24% -32% -35% -37%
What percentage of your earned income is paid into medicare system? Employee and employer?
-2.9% payroll tax on all earned income with no salary "cap" -1.45% paid by the employee and 1.45% paid by the employer
Annual rate of interest vs Annual Percentage Rate (APR)
-APR includes fees that you are required to pay, it is always higher than the annual rate -Annual rate of interest is just the yearly interest without any fees added
What does the cost of a disability insurance is based on?
-Age -Occupational hazards -Waiting period -Benefit period -Amount or percentage to be paid Does not pay 100% because they want to incentivize workers to go and work
Who is eligible to receive social security benefits?
-Age 62+, but recommended age 70 if healthy -U.S. Citizen -At least worked 40 quarters (10 years) with a minimum amount of $1,320 per quarter
PPO (Preferred Provider Organization)
-Allow you to choose from a group of providers who have their own contracts with your insurance company to provide services at a predetermined price -You do pay some amount for care when it is received -More flexibility, "Out of network providers" -Price of PPO = Co-payments + Co-Insurance + Deductibles -Contracted rate for services far below what these providers would otherwise charge
Contracts
-Always be sure you know how much you are required to pay or be paid and when -Know how long the term of the contract will be. Know what constitutes the "end" of the contract -Be knowledgeable about how amendments can be made to the contract -What happens if either party fails to perform -Make sure all blanks are filled -Do not be pressured into signing a contract -Do not agree on a handshake or a promise -Always get a copy of the contract you sign
Government bonds
-Bonds and notes issued by the US Treasury are guaranteed by the federal government -safest investment in the world -Interest on treasury bond is free from state and local taxes, but subject to federal income tax
Municipal bonds (muni bonds)
-Bonds issued by state and local government agencies -Secured by assets, taxes, revenue, or assessments -Interest from municipal bonds issued by state and local governments is free from federal income tax, in some state it may also be free from state income tax
What is a late penalty fee?
-Can not charge a late penalty fee that is greater than your minimum payment
COBRA (Consolidated Omnibus Budget Reconciliation Act)
-Continue on your company's health care plan for up to 18 months, while arranging healthcare elsewhere -Expensive because your employer may not help pay for it
Who can contribute to your 401K plans? what about ROTH 401(K)
-Employer -Employee -Uncle Sam -For Roth 401(k) only employees
What are the three major credit reporting agencies?
-Equifax -Transunion -Experian
What is the Rule of 72?
-Estimate how long it will take for a sum of money to double at a given interest rate, assuming interest is compounded annually. -Estimate what interest rate you need to have in order to double your money at a given time.
Fiduciary duty brokers vs. Commission brokers
-Financial advisors who are registered with the Securities and Exchange Commission requires that they put the best interest of their clients first, rather than just making recommendations that are deemed "suitable" -Commission brokers are allowed to recommend investment products that are suitable, a low standard that gives them far more latitude to suggest products that provide them with the biggest payouts such as those found in actively managed funds
What can void a contract?
-Fraud -Misrepresentation -Mental Incompetence -Duress including violence or coercion
What is compounding interest rate?
-Greatest invention of mankind -Interest is paid on both the principal and accumulated interest -Calculated as interest on your initial investment plus interest on the interest you earned in prior years
Earned income vs unearned income
-Includes wages, salary, bonuses, commissions, royalties, tips, and other money you have received for your personal services. -Evidenced by a w-2 form from each employer -Taxable interest, ordinary and qualified dividends, business profits or losses, capital gains or losses on investments, pension receipts, certain tax refunds, social security benefits, unemployments compensation, individual retirement account distributions, real estate activities, and partnership income.
What is the dealers invoice supposed to tell you?
-Is the manufacturer's price to the dealer before various rebates, allowances, discounts, and incites awards. -It is supposed to show the price that a car dealership paid auto manufacturers to buy a specific vehicle, but bargain since they usually have gotten in a discount
Health Care Reform Act
-It is mandated that all US citizens and legal residents buy medical insurance -Insurers may not cancel a policy because an insured person gets sick -Insurers are prohibited from denying or excluding coverage to anyone, including children, with pre-existing conditions -Insurers may not impose annual or lifetime limits on coverage -Parents can keep children up to age 26 covered on their policy -Consumers have access to an appeals process to appeal decisions by their health insurance plan -The law places strict limits on how much a premium can vary among people taking to the same coverage, age can be considered reasonable, but gender can not be one of the factors -Free preventive care services are not subject to a deductible or co-payment -Minimum mandated coverage -Employers must disclose the value of health benefits on workers' w-2 forms -Funds from HSA and FSAs may not be used for over-the-counter medication unless prescribed by a physician. The penalty is doubled to 20% -Medicaid insurance program for low-income people is expanded -Payments to primary care physicians under Medicaid are to be increased -Check if your insurance has abortion coverage
Roth IRA
-No tax deductions for contributions -Contributions made with after-tax dollars -Pay taxes now, but no more taxes will be due when you withdraw the money in retirement -Limit: maximum annual contributions is $6,000 if not covered by a retirement plan at work -Can't contribute more than your earned income -If covered by a retirement plan at work it will phase out for singles ($129,000 - $144,000) or married ($204,000 - $214,000) -After 591/2 withdrawals are tax and penalty-free if the account has been open for at least 5 years -No RMD at age 72 -Before 59.5 and the account has been opened for at least 5 years, you can withdraw your contributions tax-free, but investment earnings are subjected to tax and penalty -taxable money coming in -Money goes to beneficiaries tax-free -Limited exclusions for withdrawals without penalty: permanently disabled, need up to $10,000 for a first time purchase of a home, or money is distributed to your heirs after death -tax shelter accounts
What is Part B of medicare and how is it funded?
-Part B of Medicare is optional and means-tested -Eligible benefits include the doctor, outpatient medical services, lab work, outpatient hospital services, physical exams, and cardiovascular and diabetes screening -Financed by monthly premiums paid by the insured based on their adjusted gross income
What is Part D of medicare and how is it funded?
-Part D is optional and means tested, it is a prescription drug plan currently only provided by private insurance companies, and financed 25% by monthly premiums from the insured and 75% by taxes
How can you change your credit score?
-Pay at least the minimum balance due (2.5% - 3%, but as high as 5%) -Always mail your payment at least five days before the due date or pay online at least two days before the due date to avoid a late payment fee. -Manage your total debt/credit ratio stay below 50%, but 30% is best (Pay down what you owe or increase your credit limits) -Preserve history -Create the right credit mix -Do not apply for a lot of additional credit at once
Is credit Card Act for consumers and for businesses?
No, only for consumer credit cards, not business credit cards
What is the number one factor in determining your credit score?
-Record of paying bill on over time 35% - Debt-to-credit ratio, which is the total balance on your credit cards and other loans compared to your total credit limit 30% - Length of credit history 15% -New accounts and recent applications for credit 10% -Mix of credit cards and loans 10%
revenue vs. earnings
-Revenue is all the money coming in -Earnings = profits
401(k) Plan
-Similar to a traditional IRA -established by an employer -defined contribution plan -Give employee a list of investment options -Limit: $20,500 + $6,500 of older than 50 -Tax deductible and employers can contribute -Beneficiary of a 401(k) plan is the spouse, regardless of who is the named beneficiary -there are consulting, management fees
HMO (Health Maintenance Organization)
-Structured as non profit organizations -Pay monthly fee regardless of usage with little or no deductible or co-payment at the time of service -Coverage outside of the geographical area may be limited -Goal is to keep costs low by keeping members healthy and requiring fewer treatment procedures -Doctors are paid a salary no matter how many patients they see
Coupon yield (or "nominal" yield)
-The fixed percentage rate of interest based upon the par value of the bond. -Does not vary with the price of the bond
What are the best days to buy/lease a car?
-The last 2 days of the month -Between Christmas and New Year's Day -When last year's new models are sitting on the floor after next year's models have started to arrive -Friday and Saturday 3 hours before closing
Homeowner's insurance (4 coverages)
-The structure of your home (always insure at least 80% of the value) -Your personal belongings (Off premise belongings are also covered worldwide) -Liability protection (Damage that you or your family members cause to other people) -Additional living expenses
Are federal student loans higher for graduates than they are for undergrads? If yes, by how much.
-Undergraduate 3.73% -Graduate Students 5.28% -Direct PLUS Loans 6.28%
Definition of disability
-You can't do YOUR job or a similar job? -You can't do ANY JOB FOR WHICH YOU MAY BE QUALIFIED? -You can't do ANY job? → Social security Social security Disability benefit: For workers of any age whose disability is expected to last at least 12 months. No gainful employment can be performed to be eligible for benefits
What does it take to being a landlord?
-You need to know all the building codes, zoning requirements, and use permits must be adhered to, along with disability access, including ramps and elevators. -Can not discriminate based on race, religion, sex, gender, age, disability, or sexual orientation -laws relating to rent control and tenants rights must be observed
What are the two major categories of rental property?
-commercial -Residential
FSA (Flexible Spending Account)
-employer-only sponsored plan -money deducted from your paycheck on a pretax basis to pay for your out-of-pocket health care expenses -Contributions not subject to income taxes, social security, Medicare -At the beginning of the year, you need to estimate the amount you want to contribute to the plan, up to a maximum of $2,800 and it is deducted monthly from paycheck -Money not spent by the end of the year is forfeited(use it or lose it) - The time period is extended by the employer, up to March 15 of the the following year or - The employer may allow you to carry over up to $570 per year to use in the following year
Traditional IRA
-tax-sheltered accounts -Contributions are tax-deductible -The maximum annual contribution is $6,000 if not covered by a retirement plan at work -Can't contribute more than your earned income -If covered by a retirement plan at work it will phase out for singles ($68,000 - $78,000) or married ($109,000 - $129,000) -Taxable in the year withdrawn and taxed as ordinary income -After age 59.5 there is no penalty for withdrawals. -Before age 591/2 there is an additional 10% penalty -After age 72 you must start withdrawing money each year. -The IRs require a minimum distribution (RMD) each year, if not it would claim 50% of the amount you failed to withdraw -Exceptions for early withdrawals, but still paying taxes: Permanent disability, medical bills that exceed a certain percentage of your AGI, higher education expenses for yourself or your immediate family, and up to $10,000 for the first time purchase of a home, to build or buy -Taxable income coming out
Look at chapter 27
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Look at the Credit Card Act
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Three types of vesting?
1. 100% vesting: You own 100% of your contributions and your employers matching funds for which you have qualified. 2. Cliff vesting: You take ownership of a given year's annual matching funds all at once, but only after you have worked for the company for a specified period of time. Max is 3 year 3. Graded Vesting: You take ownership of a percentage of the employer's match each year. Usually 1/3 of the employer's contributions per year.
If your credit card is stolen, what is the first thing you do?
1. Contact the credit card issuer or bank immediately. - Your loss is limited to $50 if contact the issuer within two days of discovery. Beyond two days of discovery, you may be liable up to $500 in losses. Beyond 60 days after discovery, you may be liable for the full amount of charges. 2. Close account immediately and ask for a new card on a new account 3. Check your credit card statement every month
What are the two ways you can be in the title of the house?
1. Joint ownership with rights of survival: If one dies, the other automatically inherits the property 2. Tenants in common: Each of you own half of the house
What happens if you exceed the selected mileage allowance?
10 to 25 cents per mile at the end of the lease when you return the car, but no charge if you purchase the car
Benchmark loan
20% down payment, fixed rate of interest, 30 year term
Home Equity loan
A one time lump sum loan secured by the property, with a fixed rate of interest, to be paid off with equal monthly payments over several years.
What are prepaid cards and what are their fees?
A prepaid card is not linked to a bank checking account or to a credit union share draft account. Instead, you are spending money you placed in the prepaid card account in advance. If you lose it or gets stolen, the money is gone forever. -Activity fees up to $39.95 -Inactivity fees -Fees to load money onto the card -Fees if yo do not load any money, or at least a minimum amount, onto the card each month -Fees to check the balance information -Fees to use an ATM for cash -Fees for using a check to close an account -"Shortage fees" if purchases exceed the amount of the card
Home Equity Line of Credit (HELOC)
A revolving line of credit to reborrow funds up to a maximum amount, like a credit card. However, unlike a credit card which is unsecured debt, a HELOC is secured by the property.
Second Mortgage
An additional loan taken agains the same property which is considered riskier than a first mortgage since the first mortgage must be paid off first in the event of a default or sale of the property before the second mortgage is repaid. -Higher rate of interest and a shorter term of 3 to 5 years
What is the default rate of interest rate?
An accelerated rate of interest, typically 28% - 35% charged on your credit balance as a penalty when: - Not received the minimum payment by the due date - Payment not honored by your bank If you are more than 60 days late in making the minimum payment they can charge you the default rate
Partnership
An enterprise owned by two or more entities, which may have a very large number of partners -General and limited partner -Survive the death of a partner -Partnership does not pay federal income taxes, that becomes the obligation of each individual partner for his or her share of the total profits or losses -General partner decided to make contributions or not -Each partner receives Form k-1
What is the first thing you need to start a business?
An idea
What is a variable rate of interest?
An interest rate that moves up and down based upon a benchmark interest rate which is not controlled by the lender
Closed End Mutual Fund vs. Open End Mutual fund
Closed: Pooled investment portfolios which raise money by issuing and selling a set number of shares in an initial public offering, then listed in and exchange and publicly traded -Shares might be traded at higher or lower price based on supply can demand -lower fees than open end mutual fund Open: Pooled investments portfolios open to any investor with the money to make a minimum initial purchase -issues new shares to accommodate new purchases -share prices are all based on the NAV -Fees for administering -Must be sold with a prospectus, a document of disclosure which details the funds investment policy, strategy , expenses, and past performance
Do REITs pay tax on corporate income?
Companies that operate as a REIT pay no tax on corporate income if they pay at least 90% of their income to shareholders in the form of a dividend. -These dividends are taxed to the shareholder as short term ordinary income. -Dividends tend to be higher than the 10-year treasury rate -May be eligible for the 20% pass-through tax treatment
When you sell the real estate, what is the formula for taxes? and the name.
Cost basis = Purchase price + Capital Improvements - Depreciation -the higher the cost basis the lower your taxable profit will be upon sale
Does depreciation increase or decrease your taxes you have to pay?
Depreciation reflects the gradual loss of value of rental property as it wear out over its tax life. It reduces the operating profit of a property, and the cost basis of the property when it is sold -The IRS requires depreciation to be deducted as an expense -THE IRS SAYS RESIDENTIAL PROPERTY GOES TO 0 IN 271/2 YEARS
Types of investors
Dividend investors: Want income more than growth Value Investors: Looking for stocks which have stumbled and whose shares are at "bargain" prices (broken stocks, not broken companies) Growth Investors: Looking for strong companies to grow their sales and earnings, which usually means sales and/or earning could grow 155 or more from one year to the next
What are the most important factors when stocks would be more in the future what they are looking for?
Earnings
Disciplines of owning a stock? Which one is the most important?
Earnings, and specifically the prospect of future earnings are the single most important factor in determining whether investors will pay more for a stock in the future.
What are the three types of REITs?
Equity REITs: Own and operate income producing real estate Mortgage REITs: Finance property Hybrid REITs: may own and finance property
What is a k-1 form?
Form that is given to partners in a partnership that states the financial information required to be filed with the partners individual tax return.
What is a W-4 form?
Form to let your employer know how much it is required by law to deduct or withheld from each paycheck for your personal income taxes, both federal and state.
General partner vs. limited partner
General: Manage and runs the partnership. Has unlimited liability and would likely purchase insurance to cover the liability risk Limited: Invests in the business and have limited liability, limited only to the amount of their investment
Short Sale
If the value of the house declines to the point where the amount of the loan(s) is greater than the market value of the house -If you sold it, it would not be enough to repay the loan(s)
Itemized deductions for single and married?
If you believe that your eligible deductions are more than the standard deductions you can itemize them and deduct them before calculating your tax. -Single (greater than $12,500) -Married (greater than $25,000) -Medical expenses: uninsured medical expenses above 7.5% of AGI -State and local taxes: State and local taxes plus your residential property tax are deductible up to a combined total amount of $10,000. -Home mortgage interest: Itemized deduction for mortgage interest on their primary residence and a secondary residence up to a combined mortgage of $750,000 -Interest on a Home Equity Loan (HELOC) -Charitable deductions: Can not exceed 60% of taxpayers' AGI -Casualty and Theft Loss Deduction
Spousal account
If you have a job, but your spouse does not work during the year, you may contribute to your spouse's IRA account up to the same amount you contribute to your IRA. If you deduct your contribution, you can also deduct your spouse's contribution.
Private Mortgage Insurance (PMI)
If your downpayment is less than 20% of the purchase price, the lender may charge higher rate of interest and require you to purchase private mortgage insurance. -protects the lender from loss in the even of a default -cost is 1% and is tax deductible as if it were additional mortgage interest
Passive investor
Individuals does not materially participate in the business but is a part-time participant or a silent partner. -Person who spends less than 50% of their working hours involved in real estate activities -Ability to deduct up to $25,000 from other actively managed rental real estate, but phases out if AGI rises above $100,000 -$150,000
Active investor
Individuals spends at least 50% of his or her working hours a year, but not less than 750 hours, actively involved in the business of real estate such as a developer, owner operator, property manager, real estate broker, mortgage broker. The tax code treats the business of real estate like a full time for profit operating enterprise
What happens to a bond, when interest rises or rates decline?
Interest rises --> bonds which were previously issued decline in value Interest decline --> previously issued bonds increased in value
Liability coverage (mandatory)
Is the most important part of the automobile insurance policy. If you are at fault, liability coverage protects you from claims resulting from injuries caused to another person or damage to another party's property. -Protects when another person driving your car, without your permission, is at fault and injures or kills another person or damages another party's property -Does not cover your car, property, or injuries -15/30/5
How is part A funded of Medicare and what is it?
It Covers major items such as hospital, skilled nursing, home health care, hospice, and blood transfusion. -2.9% payroll tax on all earned income with no salary "cap" -1.45% paid by the employee and 1.45% paid by the employer
rapid rescore
It enables borrowers to pay down debt or correct errors and get accurate information updated in their credit files in just a few days rather than month -The fees may result in your qualifying for a loan with a lower interest rate
What is the alternative minimum tax?
It is a parallel tax system that eliminates many common deductions to recalculate your taxes. The ATM was designed to impose taxes on high-income people who were paying little or no income tax by taking advantage of tax loopholes. -If taxable income is over $70,300 singles or $109,400 married you must recalculate your tax using the AMT and pay the higher of the regular tax or the AMT (26% to 20%)
How many units does it has to have to be considered a residential or commercial property?
Large residence with more than 4 units are no longer considered residential, but commercial -duplex is a residential
Why is there leverage in a home loan?
Leverage is created by the use of borrowed funds to buy a house. -Goal is to use other people's money to help you make money -If the property increase in value, the loan amount does not change, and the entire gain goes to your equity, but there is also a flip side -Leverage magnifies both increase and decreases in the owners equity
What is depreciation?
Loss of value for any reason.
What is MSRP?
Manufacturer's suggested retail price or manufacturer's shoking retail price. -This is what appears on the sticker in the car's window
Market Order
Market order: The best available price at that instant in time for an immediate execution or filling of an order -Market order to buy expect to buy at the ask price -Market order to sell expect to sell at the bid price
What is the minimum mandated coverage established by the government?
Must include emergency services, maternity, and newborn care, mental health and drug abuse treatments, rehabilitation, chronic disease management, and pediatric services. -You have to cover a basic coverage -Annual check-up
Exchange Traded Stock vs. Mutual fund
Mutual fund: Professionally managed portfolios that may consist of stocks, bonds, or other investments divided into shares. -Don't buy mutual funds shares in December until after the year-end distribution for capital gains has been made if it would require you to pay tax on the distribution Exchange-Traded Funds (ETFs): Securities that track an index, but trade on an exchange like a stock -Consist of a bundle of stocks identical to those that comprise a specific index, providing instant diversification within an industry, geographic area, or another specified category -low expenses because investment run by a compute
Escrow
Neutral third party which holds the documentation and money involved in the transaction until the transaction is completed and then distributes the funds and executes the instructions. -Charges a fee for service
What is the most interest you can be charged if you carry a credit card balance? Is there a legal limit?
No legal limit or cap on interest rates on outstanding balances
Stipulated maximum (or "cap")
No matter how high the bills, you pay no more out of pocket that the stipulated maximum amount in any one year.
Can you use the money in a FSA to invest in stocks?
No, it can only be used for co-payments, co-insurance, deductibles, and other financial medical expenses that are not covered by insurance.
Is there a surcharge of high income earners when it comes to paying for medicare?
Part A: - Payroll tax has increased for high-income earners by an additional 0.9% on income over $200,000 for singles and $250,000 for couples (only to the employee) Part B: -An additional 3.8% surtax applies to high-income earners Part D: -Those with AGI greater than 85,000 get charge an extra surcharge from $14-$77 per month
How is Social Security paid for?
Payroll tax paid by worker - Total rate of tax is 12.4% of all earned income up to a a maximum annual "salary cap" of $128,400 -6.2% paid by employer and 6.2% pay by employee
Notary public
Public officer constituted by law to witness the execution of certain classes of non contentious documents
Real Estate Investment Trusts (REITs)
Publicly traded managed pools of money similar to a mutual fund, which invests in real estate rathe than stocks or bonds. -Traded like stocks and are liquid
Qualified stock dividends vs. Nonqualified stock/ordinary dividends
Qualified (Stock held for more than 61 days) -Tax at max. 20% (above $425,000 singles and $479,000 married) -Max 15% rate to those with income below these amounts -0% tax rate for those $38,000 singles and $77,200 married Ordinary (Stocks held less than 61 days -Reported on a 1040 form and are taxed as ordinary income at your individual tax rate
Difference between buying a stock and buying real estate property?
REITS enable investors to participate in real estate without having the hassle of being a landlord, but with the advantage of liquidity by owning shares traded on exchanges which can be easily bough and sold. -If you don't have income to pay property taxes, mortgage, insurance, you have to pay from your pocket -Interest are high people don't want to buy them -There are other expenses that might take you longer to sell it
Why do people refinance their home loans?
Refinance refers to replacing an existing mortgage with a new mortgage, by negotiating with current lender or moving to a new one. -To lower the interest rate or monthly payments or changing the term of the loan -Consolidate first and second mortgages -To borrow money using your equity in the house to fund remodeling, education, a business venture
What is included in each monthly payment over the term of the lease of a car?
Sales tax is included every time you make your monthly payments
Who does the salesperson represent?
Salesperson is employed by the dealer, represents the dealer, and gets his or her paycheck from the dealer. They are not your best friend.
Common stock
Share of ownership in a corporation which entitles its owner to all the risks and rewards of the enterprise
Short term capital gain vs. Long term capital gain
Short term capital gains -Assets owned 12 months or less, the profit is added to your income and is taxed at your individual tax rate with a current maximum of 37% Long term capital gains -Asset owed over 12 months -Tax at max. 20% (above $425,000 singles and $479,000 married) -Max 15% rate to those with income below these amounts -0% tax rate for those $38,000 singles and $77,200 married
Roth 401(k)
Similar to a Roth IRA, contribute after-tax dollars now, with no further tax obligation -Limit: $20,500 + $6,500 of older than 50 -Employer can only contribute to your regular 401(k) -Earnings are tax-sheltered
Where is best suited to keep a REIT?
Tax-sheltered account -ROTH IRA -Health Savings Account (HSA) -ROTH 401(k) -High dividends because they don't have to pay any corporate tax
What should you do if the dealer will not offer you what the old car is worth?
Tell them you are willing to go ahead and but the new car at the negotiated price if they agree to give you 30 days to bring them the old car, or replace it with a check equal to their trade-in offer.
Yield to maturity
Tells you how much you will receive in the future if you hold the bond to maturity. -It is the sum of all cash flows from both coupon payments and repayment of the face value -Expresses ad annual percentage rate without accounting for any taxes to be paid by the holder of the bond.
Term Insurance vs. Whole life Insurance
Term Life Insurance -Is strictly death insurance -The only time you or your family collect under the policy is if the insured person dies while the policy is in force, subject to any exclusion for suicide. -Premiums based on: -age, health, gender, lifestyle(smoking), and occupation Whole Life Insurance -Combines the cost of death or term insurance with a savings component called the cash value, an amount which is accumulated by you, managed, and invested by the insurer. -The cash value builds up tax-free and compounds in your account -Insurance is much higher due to the forced saving component and higher commissions -premium stays the same -You can barrow your policy accumulated cash value from the saving component, but need to pay interest
Deductible
The amount you pay each year before the insurance company makes any payment at all. The higher the deductible, the lower the cost of the policy.
Current yield
The annual interest payment divided by the market price of the bond. -The coupon (or interest paid) stays the same, but changes in the market price of the bond will change the current yield either up or down.
Medical means tested, what is that?
The determination of a person's financial eligibility for subsidized health care services.
Equity
The difference between the current market value of the property, less what is owed on the mortgages and any other debts against the property -Represents the value of what you would receive if the property were sold and all debts against the property were repaid.
Earnings per share (EPS)
The earnings available to common stockholders divided by the number of common stock shares outstanding. -Profit or loss attributable to each share
Who pays the estate tax?
The estate tax is paid out of the estate before distribution
Who pays the inherited tax?
The inheritance tax is paid by the heirs
What is your go-to rate of interest?
The interest rate you are charged on unpaid credit card balances, in addition to the variable rate, to determine the total rate interest on your account. -Based on your credit history
When you get your interest on the home loan is it based upon your highest credit score or your lowest credit score?
The lender will usually get three credit reports on each buyer and review them carefully. The rate of in interest quotes will be based on the lowest credit score.
Why should you buy life insurance?
The most important reason to buy life insurance is TO CREATE AN IMMEDIATE ESTATE IN THE EVEN OF DEATH. -Preserve the lifestyle of the family -Educate children -Honor financial obligations
What is a health savings account (HSA)?
The plan that allows you to set aside a pretax dollar to pay out qualified out-of-pocket medical expenses, those not covered by insurance -HSAs are tax-sheltered accounts for medical bills -Set by the employer or purchased individually -They must be used in conjunction with a high deductible health plans -Contributions to your HSA are tax-deductible -HSA Maximum Contribution single ($3,650) Family ($7,300) -HDHP Minimum Deductible single ($1,400) Family ($2,800) -HDHP Maximum Eligible Out-of-Pockets single($7,050) Family ($14,100) -Don't pay any social security of medicare tax on it -You can just put cash -If you leave your employer, you can take your HSA and transfer it to a new administrator without losing any tax benefits -If married and you die, the plan goes out to the spouse tax-free or taxed to your beneficiaries -Money can be invested
PEG Ratio
Tool used to decide if a stock is in a "buy" range of a "sell" range. Compares how much investors are currently willing to pay for each dollar of earnings, to the expected growth rate of future earnings -Some investors believe you should not buy or continue to own a stock whose PEG ratio is more than 2.0 or 2x its growth rate
1031 Exchange
Trade a property and defer taxes on capital gains by exchanging or replacing that property with another property, instead of selling it outright and paying the capital gains tax. -You must put into the new property as much equity as you took out of the old property -You must assume as much debt as before (any shortfall is taxed) -The exchange must take within 180 days
How many times is corporate dividends tax?
Twice, once at the corporate level and again at the shareholders level
What are the three major goals for purchasing rental property?
Use rental income to pay off the mortgage, using leverage to increase your equity, and by taking advantage of the deferred tax benefits afforded real estate investors.
Foreclosure
When a bank or other secured lender legally repossesses a house after the owner has failed to comply with the loan agreement -Lender can then sell the property and keep the proceeds to apply towards its loan and its legal costs and to satisfy any liens on the property such as overdue property taxes, and anything left will go to the borrower
When do you make you profits when buying a property?
When buying it, not when selling it.
Negative amortization
When the homeowner sends in monthly payments, but instead of the loan decreasing, the loan amount is actually increasing. -Occurs when below market teaser rates are used to entice people to buy a house. The difference between the low teaser rate and the market rate of interest at the time of the loan is made is added to the amount of the loan. -When the teaser rate ends, the interest rate increase to the prevailing market rate, sometimes doubling or tripling the monthly payment -Oner has a higher interest rate on a larger loan to be paid over a shorter period of time
When is the only time you can discriminate when renting?
When you are taking a border in your permanent resident.
Vesting
When you will actually own your employer's contributions since your employer does have the right to put conditions around your getting its contributions if you leave, are terminated, or take early retirement. -Unvested employer contributions remain with the employer
Can a student loan delinquency be included in your credit report?
Yes -Employment history -Lawsuits -Bankruptcies -Student loans -Charge cards, credit cards, credit limits, credit usage
Is there interest you pay on a home tax deductible?
Yes, homeowners can deduct mortgage interest, not principal, on federal and state tax returns with a mortgage currently as large as $750,000 on new loans, and up to $1,000,000 on loans in effect prior to 2017.
If you have rental property, are repair and maintenance tax deductible?
Yes, owners can deduct all the allowable operating expenses such as repairs, maintenance, utilities, insurance, interest, and property taxes.
Are there deductibles for Medicare?
Yes, part A, B, D have deductibles.
Are operating profits taxable?
Yes, they are taxable. They are profits derived from renting property, but certain non-operating items such as mortgage interest and depreciation are recorded as expenses for tax purposes and therefore have the benefits of reducing those profits.
Can unearned income be tax to pay for medicare?
Yes, under the Health care Reform Act, Medicare taxes paid by high-income earners are substantially increased along with a new Medicare tax on their unearned income (Only to the employee's income, not the employer).
What is the cost of the lease based on?
You are financing the difference between the market value of the car at the time of the lease, and the residual value of the car at the end of the lease term, adjusted for the down payment, a mileage allowance, trade in, and sales tax.
With an IRA, who is responsible for managing your account?
You are ultimately responsible for managing the assets in your IRA account, whether you do it yourself or designate someone else
What is the cornerstone of wealth?
being frugal, not cheap but value oriented
P/E Ratio
price per share/earnings per share -Tells you what the market is paying for each dollar of earning
Tax Credit vs. Tax Deduction
tax credit directly reduces your taxes by x amount tax deduction reduces your taxable income; actual taxes reduction depends on tax bracket
Triple net lease
the tenant pays the real estate taxes, maintenance, repairs, utilities, electricity and insurance in addition to rent