Series 66 - Unit 4 (Session 14, 15, 16, 17, 18, 19, 20) Next 200

Under current tax law (2019), how much can a married couple give to their adult son and his wife without incurring a gift tax obligation? A) $15,000 B) $30,000 C) $60,000 D) Unlimited

$60,000 The current gift tax exclusion (2019) is $15,000 per donor to each recipient. A married couple can give $30,000 to a single individual and qualify for the exclusion. In this case, the married couple can give $30,000 to their son and $30,000 to their daughter-in-law without paying any gift tax.

What is an exchange specialist?

A specialist is a dealer on the NYSE who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks. A specialist must have sufficient capital to buy and sell from his own account in order to maintain a liquid and orderly market.

What is AMT?

A tax enacted by Congress to ensure that high-income taxpayers do not escape federal income taxes. Certain items that receive favorable tax treatment must be added back into taxable income for the AMT and included all Tax preference Items AMT uses a separate set of rules to calculate taxable income after allowed deduction. Preferential deductions are added back into the taxpayer's income to calculate his or her alternative minimum taxable income (AMTI), and then the AMT exemption is subtracted to determine the final taxable figure.

To calculate the AMT, then, calculate the taxable income the usual way and then add back preference items for minimum tax purposes. Tax preference items included

Accelerated depreciation on property placed in service after 1986 Certain costs associated with limited partnership programs, such as research and development costs and excess intangible drilling costs Local tax and interest on investments that do not generate income Tax-exempt interest on private purpose municipal bonds issued after August 7, 1986. Examples of these private purpose or private activity bonds that make them subject to the AMT would be those issued to finance sports stadiums, hospitals, housing projects, and so forth Incentive stock options (ISO) to the extent that the fair market value of the employer's stock is in excess of the strike price of the option, even when the stock is not sold in that year In Addition, the AMT can lead to a loss of: -personal exemptions -deductions for state income tax and property tax; and -deductions for home equity line interest in some cases.

Is a 529 plan considered a Security?

Actually, YES. 529 plans are technically considered municipal fund securities.

Which of the following attributes of 401(k) plans is NOT found in most other retirement plans? A) No penalties for premature distributions. B) Tax-deferred earnings. C) Matching employer contributions. D) Deductible contributions to the plan.

C) Matching employer contributions 401(k) plans allow the employer to match employee-directed contributions up to a stipulated percentage. Other retirement plans have tax-deferred earnings, deductible contributions to the plan, and premature withdrawal penalties.

One of the important roles of an investment adviser representative is assisting clients in analyzing the performance of securities held in their portfolios. Which of the following is the best measurement of a security's performance? A) Yield B) Standard deviation C) Total return D) Beta

C) Total Return Total return reflects the entirety of a security's performance because it includes both income and capital appreciation

Which of the following can be rolled over into an IRA? I. Another IRA. II. Corporate pension plan. III. Corporate profit-sharing plan. IV. Keogh plan.

I, II, III, and IV Assets from any qualified corporate plan or from another IRA may be rolled over into an IRA.

What kind of measurements are Beta & Standard deviation

Risk measurements while they may be used to evaluate a security's performance when compared to the risk taken, they don't truly provide a measurement as does total return.

What was originally known as the education IRA?

The Coverdell ESA

Characteristics of a Coverdell ESA (Education IRA)

The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over to an ESA established in the name of a family member The maximum contribution is $2,000 per beneficiary (child) Contributions are not deductible and must cease when the beneficiary reaches age 18. if the accumulated value in the account is not used by age 30, the funds must be distributed and the earnings are subject to income tax and a 10% penalty. Taxes and penalties can be avoided if the account is rolled over into a different Coverdell ESA for another family member.​

Since its inception in 1986, virtually all of the states have replaced the Uniform Gifts to Minors Act with the Uniform Transfers to Minors Act. It is generally agreed that one of the primary benefits offered by UTMA over UGMA is

greater flexibility in the type of property that may be transferred The property that may be transferred into an UGMA account is generally limited to cash and securities, while in an UTMA account, almost any kind of property—real or personal, tangible or intangible—can be transferred to the custodian.

Grandma has decided to give her grandson some stock that she bought many years ago. When the grandson sells the stock, how is the tax liability figured? A) Her cost basis and date of purchase is used. B) Both the cost basis and holding period are determined from the date of the gift. C) Her date of purchase is used, but the cost basis is from the date of the gift. D) Her cost basis is used, but the holding period begins on the date of the gift.

A) Her cost basis and date of purchase is used When stock is given as a gift, the donee (recipient) takes over the cost basis and the holding period of the donor.

There are provisions in the IRS Code which allow certain forms of business to avoid being subject to income tax on the business level. The list would include all of the following EXCEPT: A) LLC. B) sole proprietorship. C) limited partnership. D) S corp.

B) Sole Proprietorship In the case of a sole proprietorship, the owner reports any income on his personal Form 1040, Schedule C. The other entities do not pay tax themselves - any income flows through to the members (LLC), stockholders (S corp) and partners (ltd. Partnership).

Which of the following could result in a client being subject to the alternative minimum tax? A) Intangible drilling costs B) Interest received on a general obligation bond C) Exercise of an incentive stock option D) Straight-line depreciation

C) Exercise of an incentive stock option When an incentive stock option is exercised, the excess of the market price over the strike price is an AMT adjustment. It is only excess intangible drilling costs, interest from private activity municipal bonds, and accelerated depreciation where AMT comes into play.

For an individual earning $150,000 per year, which of the following would be the highest rate? A) The effective tax rate B) The median tax rate C) The qualifying dividend tax rate D) The marginal tax rate

D) The Marginal tax Rate Because we have a progressive income tax system (the higher the taxable income, the higher the tax rate), the marginal tax rate, which represents the tax on the last dollar received, is the highest rate one will pay.

Tax considerations are frequently an important factor when determining appropriate recommendations for advisory clients. In which of the following accounts is the tax status of the individual a critical factor? I. An account opened in the name of the XYZ Corporation, organized as a C corporation, by their chief investment officer. An account opened by a sole proprietor in the name of the company. An account opened in the name of ABC Corporation, an S corporation by one of its shareholders. An account opened in the name of the GHI fund, a Regulated investment company, by the fund's portfolio manager. A) I and IV. B) II and III. C) III and IV. D) I and II.

II and III Sole proprietorships and S corporations have their income and losses pass through to the owners. Therefore, an account opened in the name of the business will create tax consequences for the owners. Regular, or C corporations, pay taxes on their earnings and, even though a Regulated investment company passes through at least 90% of its earnings to shareholders, the tax situation of each individual shareholder of the fund is of no consideration when making recommendations to the fund's portfolio manager.

Are retirement plans included in the definition of a Security?

NO They are specifically excluded

An investment is made of $10,000. At the end of the year, $500 in non-qualifying dividends has been received and the value of the investment is $10,500. If the investor is in the 30% tax bracket, the after-tax yield is: A) 3.5% B) 6.5% C) 5.0% D) 8.5%

A) 3.5% The only return (as far as yield is concerned) is the $500 of dividends. Remember, non-qualifying dividends do not "qualify" for the 15% rate. Subtracting 30% for taxes leaves $350 which, when divided by the $10,000 initial cost, is an after-tax yield of 3.5%. If the question had asked about total return, then the $500 unrealized profit would have been included, although there would have been no tax on it.

Which of the following is not included in adjusted gross income on an individual's federal income tax return? A) Dividends paid on preferred stock B) Unemployment compensation C) Municipal bond interest D) Salary and commissions

Municipal bond interest Although tax-exempt interest is reported on the Form 1040 (line 8b), it is not included in adjusted gross income.