Tax Issues and Consequences in Financial Planning. Course #5505F/QAS5505F Exam Packet

Transcription

1 Tax Issues and Consequences in Financial Planning Course #5505F/QAS5505F Exam Packet

2 TAX ISSUES AND CONSEQUENCES IN FINANCIAL PLANNING (COURSE #5505F/QAS5505F) COURSE DESCRIPTION Any type of investment decision or financial plan must include an analysis of many factors, including the risk of the investment, the individual or couple s short term and long term financial needs, and the related tax implications. This course covers the tax issues and consequences related to investment decisions, retirement planning, and estate and education planning. Uses the materials entitled Tax Issues and Consequences in Financial Planning. No prerequisites. Course level: Basic. Course #5505F/QAS5505F 24 CPE hours. LEARNING ASSIGNMENTS and OBJECTIVES As a result of studying each assignment, you should be able to meet the objectives listed below each individual assignment. ASSIGNMENT SUBJECT 1 Introduction Tax Treatment of Investment Income Deductions of Investment Expenses Passive and At-Risk Rules Basis of Investment Property Sale of a Home Study the course materials from pages i to 5-15 Complete the review questions at the end of each chapter Answer the final exam questions 1 to 24 Objectives: To explain the proper tax treatment for various types of investment income, including interest, dividends, and capital gains To identify limitations on deductibility of investment expenses To explain how the passive activity and at-risk rules apply to the deductibility of investment losses To calculate the basis of an investment To explain the tax rules that apply when an individual sells his or her main home Exam Page -1

3 ASSIGNMENT SUBJECT 2 Rental Income and Expenses Mutual Fund Distributions Taxation of Business Entities Alternative Minimum Tax Tax Implications of Marriage and Divorce Study the course materials from pages 6-1 to Complete the review questions at the end of each chapter Answer the final exam questions 25 to 58 Objectives: To describe the tax implications of owning a second home, whether for rental purposes or not To explain the rules that govern the taxation of distributions from mutual funds To list the various tax implications on an individual business owner that result from different forms of business entities To describe what the AMT is and list items that affect its calculation To recognize the rules affecting the classification of marital property and how marriage or divorce can affect income tax liabilities ASSIGNMENT SUBJECT 3 Employer-Sponsored Retirement Plans Individual Retirement Arrangements Taxation of Social Security Benefits Study the course materials from pages 11-1 to Complete the review questions at the end of each chapter Answer the final exam questions 59 to 87 Objectives: To explain the various types of retirement plans that small business owners can establish for themselves and their employees and the tax implications of each To identify the different tax rules and implications as they apply to the different types of individual retirement arrangements (IRAs) To recognize how social security benefits are calculated and identify the rules governing the taxation of such benefits Exam Page -2

4 ASSIGNMENT SUBJECT 4 Estate and Gift Taxes Tax Benefits for Survivors Life Insurance and Variable Annuities Trusts as a Financial Planning Tool Tax-Free Savings for Education Study the course materials from pages 14-1 to Complete the review questions at the end of each chapter Answer the final exam questions 88 to 120 Objectives: To explain when the federal gift tax and estate tax apply and various methods of eliminating this taxation To recognize the tax benefits offered to surviving spouses, dependents, and qualifying children To recognize the different types of life insurance policies and variable annuities available and the tax implications of each To explain the basics of various kinds of trusts and how they can be used as an estate and financial planning tool To list the tax benefits that may be available to individuals who are saving for and paying education costs either for themselves or their dependents ASSIGNMENT 5 Complete the Answer Sheet and Course Evaluation and mail to PES for credit NOTICE This course and test have been adapted from materials and information contained in the materials entitled Tax Issues and Consequences in Financial Planning and any supplemental material provided. This course is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice and assumes no liability whatsoever in connection with its use. Since laws are constantly changing, and are subject to differing interpretations, we urge you to do additional research and consult appropriate experts before relying on the information contained in this course to render professional advice. Professional Education Services, LP 2012 Program publication date 8/2/12 Exam Page -3

5 TAX ISSUES AND CONSEQUENCES IN FINANCIAL PLANNING (COURSE #5505F/QAS5505F) EXAM OUTLINE COURSE EXPIRATION DATE: Per AICPA and NASBA standards, this course must be completed within one year from the date of purchase. TEST FORMAT: The following final exam, consisting of 120 multiple choice questions, is based specifically on the material included in this course. The answer sheet must be completed and returned to PES for CPE certification. You will find the answer sheet at the back of this exam packet so that you may easily remove it and use it while taking your test. LICENSE RENEWAL INFORMATION: The Tax Issues and Consequences in Financial Planning course (#5505F/QAS5505F) qualifies for 24 CPE hours. PROCESSING: Your exam will be graded promptly. You must score 70% or better to pass. When you pass, your certificate of completion will be mailed. If you do not pass, we will give you a courtesy call to inform you of this and then another answer sheet will be sent to you free of charge. GRADING OPTIONS: Please choose only one of the following. There is no additional charge for any of these grading options. Make sure to fill out your answer sheet completely prior to submitting it. ONLINE GRADING Visit our website at Login to your account (if you are a first-time user you must set up a new user account). Go to the MY CPE tab and click the My CPE Exams in Progress folder. If your exam is not already located in this folder, click Add Exam Previously Purchased and follow the instructions. MAIL Your exam will be graded and your certificate of completion mailed to you the same day we receive it. Your certificate will be dated according to the postmark date; therefore, you do not need to overnight your exam. Please mail your answer sheet to: Professional Education Services, LP 4208 Douglas Blvd., Ste 50 Granite Bay, CA FAX Your exam will be graded and you will be contacted either via phone or fax with your results within 4 business hours of receipt. A copy of your graded exam and certificate of completion will be mailed to you the same day we receive it. Your certificate will be dated according to the fax date. If you choose to fax your exam, please do not mail it. Your fax will serve as the original. Please refer to the attached answer sheet for further instructions on fax grading. Fax number (916) Thank you for using Professional Education Services. We appreciate your business!! Exam Page -4

6 TAX ISSUES AND CONSEQUENCES IN FINANCIAL PLANNING (COURSE #5505F/QAS5505F) FINAL EXAM The following questions are multiple choice. Please indicate your choice on the enclosed Answer Sheet. 1. Which of the following statements about the taxation of interest on IRAs is correct: a) interest on a Roth IRA is generally taxable b) interest on a Roth IRA is generally not taxable c) interest on a traditional IRA is tax deferred d) both b and c above 2. Interest on U.S. obligations such as Treasury bills is: a) taxable for federal income tax purposes b) not taxable for federal income tax purposes c) taxable for federal income tax purposes for persons whose adjusted gross income exceeds $100,000 per year d) none of the above 3. Interest on a bond used to finance government operations is not taxable if the bond is issued by: a) a state b) the District of Columbia c) a U.S. possession 4. Market discount arises when the value of a debt obligation decreases after its issue date, generally because: a) of escalating oil prices b) of an increase in interest rates c) of a decrease in interest rates d) both a and c above 5. Distributions of stock dividends and stock rights are taxable if: a) the investor or any shareholder has the choice to receive cash or other property instead of stock or stock rights b) the distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders c) the distribution is on preferred stock 6. A passive activity is generally: a) one in which the investor does not materially participate b) any rental activity c) a business that is losing money d) both a and b above 7. Generally, taxpayers can use losses from passive activities only to offset income from: a) other passive activities b) any activities in which the taxpayer is less than a 50% owner c) activities regulated by the Securities and Exchange Commission 8. To be deductible as an investment expense, the expense must be: a) made in good faith b) ordinary and necessary c) made with respect to an investment that is profitable d) incurred within six months of the initial investment Exam Page -5

7 9. Under what circumstances can individuals deduct all of the rent paid for a safe deposit box as an investment expense: a) if it is used only to store taxable incomeproducing stocks, bonds, or other investmentrelated papers b) if it is used to store collectibles, such as gold coins c) if it contains more business than personal items d) in all circumstances 10. Which of the following are nondeductible expenses associated with investments: a) the cost of attending stockholders meetings b) expenses for attending investment-related seminars c) investment counsel and advice d) both a and b above 11. For individuals who use the cash method, investment-related expenses can be deducted: a) at any time selected by the taxpayer b) in the year in which they are paid c) when the liability is incurred d) anytime within three years of the date the expense was incurred 12. The passive activity loss rules apply to all of the following except: a) individuals b) partnerships c) personal service corporations d) closely-held corporations 13. A rental activity is a passive activity even if an individual materially participated in that activity, unless they are: a) a building or apartment manager b) a licensed real estate professional c) the owner of the property d) an off-site real estate property management firm 14. An individual is considered to have materially participated in a trade or business activity for a tax year if: a) the individual participated in the activity for more than 500 hours b) the individual s participation was substantially all the participation in the activity of all individuals for the tax year, including the participation of individuals who did not own any interest in the activity c) the individual materially participated in the activity for any five of the ten immediately preceding tax years d) any of the above 15. Which of the following is true regarding passive activity credits: a) passive activity credits can only be subtracted from the tax on net passive income b) passive activity credits, more than the tax on income from passive activities, can be carried forward or back c) unallowed passive activity credits can be claimed when the taxpayer disposes of his or her entire interest in the activity 16. An individual is considered at risk in any activity in which he/she has: a) contributed money or adjusted property basis to the activity b) borrowed money used in the activity where he/she is personally liable for repayment c) nonrecourse financing used in the activity d) both a and b above 17. When an investor purchases property, his or her basis in the property: a) is generally its fair market value b) is usually the amount paid in cash, debt obligations, or other property or services c) includes any stated or unstated interest d) is not an important measurement Exam Page -6

8 18. To figure the basis for property received as a gift, the owner must know: 22. Which of the following would an individual add to the basis of his or her property: a) the donor s adjusted basis in the property just before it was gifted b) the fair market value of the property at the time it was given to the owner c) the amount of any gift tax paid on the property gifted 19. Which of the following is not true regarding wash sales: a) an individual cannot deduct losses from sales or trades of stock or securities in a wash sale b) if a loss is disallowed because of the wash sale rules, the individual must add the disallowed loss to the cost of the new stock or securities c) the wash sale rules do not apply to contracts and options to acquire or sell stock or securities d) an individual has a wash sale if an individual sells stock and his or her spouse buys substantially identical stock within 30 days before or after the individual s sale 20. If an individual has more than one home, he or she can exclude the gain from its sale only when the home was his/her: a) condominium and owned for one year b) houseboat and owned for less than two years c) vacation home and sometimes rental property d) main home, owned and lived in for at least two of the last five years 21. Which of the following is not true regarding the gain or loss on the sale of a home: a) the selling expenses can be subtracted from the selling price when calculating the amount realized b) if the sellers are married and file separate returns, either spouse can report the entire gain or loss on their return c) a loss on the sale of an individual s main home is not deductible d) if two owners who are not married sell their jointly-owned home, each must calculate their own gain or loss according to their ownership interest in the home Exam Page -7 a) putting on a new roof b) repainting the outside of a house c) replacing broken windows d) repairing plastering 23. Regarding the exclusion of a taxable gain from the sale of a taxpayer s main home, which statement is not correct: a) to qualify for the exclusion, certain ownership and use tests must be met b) the maximum exclusion amount for a married couple filing jointly is $500,000 c) if they qualify, all taxpayers must take the allowable exclusion d) the maximum exclusion amount for an individual equals $250, Which of the following is not true regarding the ownership and use tests as they relate to the allowable $250,000 exclusion of the gain on the sale of an individual s main home: a) the individual must have owned the home for at least two years of the five-year period ending on the date of the sale b) the individual must have lived in the home as his or her main home for at least two years of the five-year period ending on the date of the sale c) the years of ownership and use must be continuous during the five-year period prior to the date of sale d) the years of ownership and use do not have to cover the same period of time as long as they are within the five-year period immediately preceding the date of sale 25. Which of the following should not be included in rental income in the year it was received: a) rental income for the year the owner actually or constructively received it by cash basis taxpayers b) advance rent c) security deposits (intended to be returned at the end of the lease) d) payments made by the tenant to cancel a lease

9 26. If an individual holds property for rental purposes, he or she may be able to deduct all of the following except: a) depreciation expenses when it is ready and available to rent b) ordinary and necessary costs for maintaining the property while vacant c) ordinary and necessary costs for managing the property until it is sold d) the loss of rental income for the period the property is vacant 27. Which of the following cannot be deducted when an owner rents part of his or her property: a) home mortgage interest related to the part of the property rented b) the cost of the first phone line if the tenants have unlimited use of it c) electricity usage related to the part of the property rented d) the entire premium related to liability insurance for the portion of the property rented 28. An owner is considered to use a dwelling unit as a home during the tax year if he or she uses it for personal purposes: a) more than 14 days during the year b) more than 10% of the total days it is rented to others at a fair rental price c) more than the lesser of a or b above d) more than the greater of a or b above 29. If a dwelling unit s owner donates its use to a charitable organization that in turn sells the unit s use in a fundraising event, the owner has incurred personal use when: 31. A mutual fund is an example of a: a) open-end company b) closed-end company c) unit investment trust d) any of the above 32. Which of the following is true regarding a hedge fund: a) it is used to describe private, unregistered investment pools b) it is a type of mutual fund c) it is subject to numerous regulations for the protection of investors d) it is a financial instrument whose performance is derived from the performance of an underlying security 33. Which of the following generally has the lowest risk: a) hedge funds b) money market funds c) bond funds d) stock funds 34. A family of funds is a group of mutual funds in which each fund member typically shares all of the following features except: a) administrative and distribution systems b) common investment objectives c) the ability to exchange assets within the family d) no fee for exchanges made within the family of funds 35. According to the rules of the FINRA, a front-end load cannot be higher than: a) the charity event purchaser uses the property b) the donation is made to the charity by the owner c) the charity actually sells the unit at the fundraising event d) the charity receives full cash payment for the donated unit s use 30. Most investment property placed in service after 1986 is depreciated using the: a) straight-line method b) declining balance method c) ACRS method d) MACRS method Exam Page -8 a) $50 b) 5% of the investment c) 8.5% of the investment d) $1, When an investor buys and holds mutual fund shares, he or she will owe income tax on: a) any ordinary dividends in the year he or she receives or reinvests them b) the fund s capital gains c) personal capital gains when he or she sells his or her shares

10 37. The fees and charges an investor pays to acquire or redeem shares of a mutual fund are deductible. a) always b) frequently c) sometimes d) not 38. When mutual fund shares are acquired by gift, and the FMV is less than the adjusted basis at the time of the gift, the recipient s basis for loss is: a) the original basis to the donor at the time of the gift b) the adjusted basis to the donor at the time of the gift c) the fair market value of the shares at the time of the gift d) the gift tax paid on the gift of the shares 39. The IRS considers any exchange of shares made between one mutual fund and another, assuming the exchange is within the same family of funds, to be a exchange. a) like-kind b) non-taxable c) wash-sale d) taxable 40. Which of the following is not true regarding the identification of mutual fund shares sold: a) investors can only use the cost basis if they did not previously use an average basis for a sale, exchange, or redemption of other shares in the same mutual fund b) the cost basis can be calculated using either the specific share identification method or the first-in, first-out (FIFO) method c) an investor can switch the method for calculating basis of shares within the same fund at any time as long as he or she keeps a record of which method was used for each sale or exchange d) under the single-category method, an investor finds the average basis of all shares owned at the time of each disposition, regardless of how long he or she owned them 41. The self-employment tax consists of two parts, which are: a) federal withholdings and state withholdings b) social security and federal withholdings c) social security and Medicare d) Medicare and state withholdings 42. In order for a limited liability company to be treated for federal tax purposes as a partnership, it must have what minimum number of members: a) one b) two c) five d) ten 43. A multi-member LLC wishing to file as a corporation must file: a) Form 1040 b) Schedule K-1 c) Form 1065 d) Form Each LLC member s share of profits and losses are set out in: a) the by-laws b) the Articles of Incorporation c) the operating agreement d) none of the above 45. The conversion of a partnership into an LLC, while retaining the partnership classification for federal tax purposes, would affect the partnership or partners in which of the following ways: a) ends the partnership, the same as in a sale or liquidation b) the conversion would not terminate the partnership c) the partnership s tax year would close on the date of conversion d) the value of the partners bases would not change due to conversion Exam Page -9

11 46. Which of the following organizational expenses can be amortized by a partnership: a) acquiring assets for the partnership b) making a contract relating to the operation of the partnership trade or business c) filing fees 47. Which of the following is true regarding capital losses: a) corporations can deduct capital losses in full in the year incurred, regardless of amount b) corporations can deduct capital losses up to the amount of its capital gains c) a corporation can carry a capital loss forward from a year for which it was an S corporation d) a corporation cannot carry back capital losses 48. S corporation status: a) must be elected by at least 50% of its shareholders b) can be made anytime during the corporation s taxable year c) requires that the corporation be duly organized under the laws of its state of organization 49. Which of the following is an example of a tax preference item when calculating the AMT: a) itemized deductions b) tax-exempt interest from certain private activity bonds c) personal exemptions d) passive activity loss limitations 50. Which of the following is true regarding children and the AMT: a) children cannot be subject to the AMT b) children are allowed the normal AMT exemption for single individuals c) children are allowed an exemption for AMT purposes of $6,950 plus earned income (in 2012) d) the limit on the standard deduction for children when calculating the AMT is $ Which of the following is true regarding the alternative minimum tax (AMT): a) AMT pass-through items are required to be reported on each shareholder s or partner s tax return b) a taxpayer s AMT liability is not included in his or her computations regarding estimated payments c) a taxpayer is not required to annualize AMT taxable income for a short taxable year Which of the following is not true regarding the Minimum Tax Credit (MTC): a) the MTC is the difference between the AMT computed with exclusion and deferral items and the AMT computed using only exclusion items b) the MTC can be carried backward or forward c) the MTC is computed only on deferral items d) the MTC can reduce only the excess of the regular tax (reduced by all other nonrefundable credits) over the tentative minimum tax in a subsequent year 53. When making an AMT liability determination, the taxpayer is required to: a) calculate his or her regular tax liability b) determine whether or not he or she is subject to additional tax under AMT c) compute his or her AMTI on Form Community property would generally include all of the following if they occurred in a community property state except: a) real property purchased during a marriage b) income earned on a business owned by one of the spouses during the course of the marriage c) jewelry acquired by gift by a spouse during the marriage d) stocks purchased during the marriage Exam Page -10

12 55. To establish a classification of separate property by a party domiciled in a community property state, acceptable evidence would not include: a) showing that the property was acquired by gift b) identifying the property as separate property in your will c) tracing the property to separate property assets d) showing a clear agreement between the parties regarding the nature of the property 56. Which of the following is the determining factor as to proving where an individual is domiciled: a) where the individual pays state income tax b) citizenship c) amount of time spent in one place d) intent 57. A prenuptial agreement: a) is nothing more than a contract between two persons that governs the distribution of marital assets at the time of the dissolution b) is generally enforceable c) can be considered invalid if the party against whom enforcement is being challenged can prove they did not voluntarily execute the contract and the agreement was unconscionable 58. If a couple elects to file separate returns in anticipation of paying lower combined federal taxes, they will not be able to claim which of the following deductions/credits: a) earned income credit b) interest paid on a qualified student loan c) standard deduction 59. Which of the following is a disadvantage of qualified plans as compared to either SEP or SIMPLE plans: a) more complex rules to follow b) less flexibility in designing the plans c) decreased contribution limits d) decreased deduction limits 60. Which of the following is not one of the advantages small businesses obtain by establishing and funding a SEP: a) amounts contributed can be small b) contributions do not have to occur each year c) contributions are treated as taxable compensation to employees d) contributions are deductible within limits 61. In 2012, the limit on how much an employer can deduct for its contributions to a participant s SEP- IRA is: a) the employer s contributions (including any excess contributions carryover) b) 25% of the compensation (limited to $250,000 per participant) paid to the participants during 2012 c) the lesser of a and b above d) the greater of a and b above 62. Which of the following is true regarding a SIMPLE plan: a) employees can choose to make salary reduction contributions to the plan b) employers will contribute matching or nonelective contributions c) SIMPLE plans can only be maintained on a calendar-year basis 63. Generally, the election period for a SIMPLE plan is the day period immediately preceding January 1 of the calendar year. a) 10 b) 30 c) 45 d) SIMPLE IRA contributions are not subject to: a) federal income tax withholding b) social security taxes c) Medicare taxes Exam Page -11

13 65. There are how many basic qualified plan types: a) one b) two c) three d) five 66. The deduction for contributions to a defined benefit plan is based on: a) the compensation paid during the year to all eligible participants b) the compensation paid during the year to all participating employees c) actuarial assumptions and computations d) none of the above 67. Which of the following is not true regarding distributions from qualified plans: a) distributions may be non-periodic b) certain loans may be treated as distributions c) periodic distributions are permitted d) each participant must receive his or her entire benefits in the plan by the required beginning date 68. Generally, distributions cannot be made from a 401(k) plan until: a) the employee retires, dies, becomes disabled, or otherwise severs employment b) the plan ends and no other defined contribution plan is established or continued c) the employee reaches age 59½ or suffers financial hardship (if the plan is part of a profit-sharing plan) d) any of the above 69. The initial tax on a prohibited transaction is of the amount involved for each year (or part of a year) in the taxable period. a) 6% b) 10% c) 15% d) 100% 70. An individual can set up and make contributions to a traditional IRA if: a) the individual (or, if he or she files a joint return, his or her spouse) received taxable compensation during the year b) the individual was not age 70½ by the end of the year c) both a and b above d) none of the above restrictions are relevant to traditional IRAs 71. Compensation for purposes of an IRA does not include which of the following: a) commissions b) self-employment income c) alimony and separate maintenance d) deferred compensation 72. Which of the following is not true regarding a traditional individual retirement account: a) contributions must be in cash, except for rollover contributions b) the investor must have a nonforfeitable right to the amount at all times c) money in the account can be used to buy life insurance d) the individual must start receiving distributions by April 1 of the year following the year in which he or she reaches age 70½ 73. If an otherwise qualified individual owns more than one IRA account, which of the following is true regarding his or her total annual contribution limit: a) the entire limit amount applies to each IRA account owned b) the contribution limit applies only during the first year that an account is open c) the annual contribution limit is split in half for married couples filing jointly d) the limit applies to the total contributions made on the individual s behalf to all traditional IRAs for the year Exam Page -12

14 74. Contributions can be made to a traditional IRA for the year up until: a) December 31 of the taxable year b) the due date for filing the return for that year, not including extensions c) the due date for filing the return for that year, including extensions d) December 31 of the following taxable year 75. If an individual is divorced or legally separated before the end of the year, but did not remarry, the individual deduct the contributions made to both his or her own and his or her spouse s IRA. a) can b) can if over age 62 c) cannot d) cannot if over age Which of the following is true regarding nondeductible contributions: a) an individual must designate a contribution as nondeductible when made b) if an individual fails to report nondeductible contributions, all of the contributions to their traditional IRA will generally be treated as deductible c) the penalty for overstating the amount of nondeductible contributions on Form 8606 is $50 for each overstatement d) the earnings on all nondeductible contributions are taxed annually 77. Individuals who inherit a traditional IRA from a spouse generally can: a) treat it as their own by designating themselves as the account owner b) treat it as their own by rolling it over into their traditional IRA c) treat themselves as the beneficiary rather than treating the IRA as their own d) any of the above 78. Generally, if an eligible rollover distribution is paid directly to an individual, the payer must withhold: a) $100 per rollover b) 10% of the rollover distribution amount c) 20% of the rollover distribution amount d) 50% of the rollover distribution amount 79. For 2012, individuals can convert amounts from a traditional IRA to a Roth IRA: a) if the individual s modified AGI for Roth IRA purposes is not more than $100,000 b) if the individual is not a married individual filing a separate return c) without any AGI limits d) if both a and b are met 80. If an individual chooses to recharacterize his or her IRA contribution, the individual must do all of the following except: a) include in the transfer any net income allocable to the contribution b) report the recharacterization on the individual s tax return for the year during which the contribution was made c) must pay a recharacterization tax of 6% of the value of the recharacterization d) treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA 81. If distributions from an IRA are not at least as much as the minimum required, an excise tax on the amount not distributed as required may be assessed at a rate of: a) 6% b) 10% c) 20% d) 50% 82. Which of the following is true regarding required minimum distributions: a) the yearly required minimum distribution can be taken in a series of installments b) if an individual has more than one traditional IRA, he or she must determine and take the required minimum distributions from each IRA separately c) if an individual receives more than the required minimum distribution for one year, he or she can receive a credit for the additional amount when determining the required amounts for future years Exam Page -13

15 83. Distributions from traditional IRAs are: a) taxable in the year they are received b) included in income and taxed as ordinary income c) taxable only to the extent they do not represent nondeductible contributions 84. If excess contributions made to a traditional IRA are not withdrawn by the date an individual s tax return for the year is due (including extensions), the individual is subject to a tax. a) 6% b) 10% c) 20% d) 50% 85. An individual with employment credits should receive a social security statement approximately: a) 3 months before his or her birthday b) 2 months before his or her birthday c) 1 month before his or her birthday d) 1 month after reaching age Which of the following is true regarding social security benefits: a) if an individual s full retirement age is older than 65, he or she cannot take retirement benefits at 62 b) early retirement will give an individual about the same total social security benefits over his or her lifetime as waiting until full retirement age c) an individual who continues to work past his or her full retirement age will decrease his or her social security benefits 87. Which of the following is not true regarding a spouse s benefits: a) a spouse is entitled to receive one-half of the retired worker s full benefit once he or she reaches full retirement age b) if an individual is eligible for both his or her own retirement benefits and for benefits as a spouse, the SSA will always pay his or her own benefit first c) if the total benefits due to a spouse and children exceed the family benefit maximum, his or her benefits will be reduced proportionately d) the amount of benefits a divorced spouse gets impacts the amount of benefits a current spouse can receive 88. Approximately how many estates are subject to the estate tax: a) 2% b) 10% c) 50% d) 90% 89. Which of the following is true when a gift is made: a) the person who receives the gift generally is required to pay a gift tax b) the person who receives the gift generally must pay income tax on the value of the gift c) both a and b above d) none of the above 90. Which of the following can be deducted from an estate: a) funeral expenses paid out of the decedent s estate b) debts the decedent owed at the time of death c) charitable deductions Exam Page The alternative valuation date election for valuing an estate is allowed only: a) if assets cannot be liquidated within six months of the decedent s death b) when the estate assets are made up of a closely-held family business c) if it lowers the individual s tax liability d) when the estate assets consist of family farmland

16 92. Which of the following gifts is not exempt from gift tax: a) a gift of $13,000 or less to one individual in 2012 b) tuition expenses paid on behalf of another directly to the educational institution c) medical expenses paid to the recipient as reimbursement for costs previously incurred d) transfers between spouses 93. An individual is not required to file a gift tax return if: a) an individual and his or her spouse are splitting a gift b) an individual gave someone other than his or her spouse a gift that he or she cannot actually possess, enjoy, or receive income from until some time in the future c) an individual gave a gift of qualified conservation property that is a restriction on the use of real property forever d) an individual gave his or her spouse an interest in property that will be ended by some future event 94. Which of the following is true regarding the generation skipping tax: a) the generation skipping tax is a simple concept intended to prevent families from avoiding estate taxes b) the generation skipping tax cannot apply outside familial situations c) the generation skipping tax does not apply to half-blood or adopted relatives 95. Which of the following is true regarding state death and gift taxes: a) inheritance taxes are imposed on the person receiving the devise b) estate taxes are imposed on the person receiving the distributions from the estate c) gift taxes are imposed on the beneficiary receiving the gift 96. Which of the following is a tax benefit often available to a surviving spouse: a) claim a filing status of qualifying widow(er) with dependent child b) claim a filing status of married filing jointly during the decedent s tax year of death c) claim the earned income credit if the decedent was the survivor s qualifying child 97. Income in respect of a decedent must be included in the income of: a) the decedent s estate, if the estate receives it b) the beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it c) any person to whom the estate properly distributes the right to receive it d) any of the above 98. If a beneficiary transfers his or her right to income in respect of a decedent, the beneficiary must include in his or her income: a) the amount he or she received for the right b) the fair market value of the right he or she transferred c) the greater of a or b above d) the lesser of a or b above 99. Wages paid as income in respect of a decedent during the calendar year of death are not subject to: a) federal income tax withholding b) social security taxes c) Medicare taxes d) any of the above 100. The interest accrued on savings certificates that is for the period from the date of the last interest payment and ending with the date of the decedent s death (but not received as of that date) is: a) income in respect of a decedent b) income to the beneficiary c) forfeited by the decedent d) income to the decedent s estate Exam Page -15

17 101. Generally, the balance in a Coverdell ESA must be distributed within after the individual for whom the account was established reaches age 30 or dies, whichever is earlier. a) 30 days b) 3 months c) 1 year d) 3 years 102. Which of the following is an advantage of life insurance: a) the insured usually pays little up front for the policy b) the proceeds of the policy pass directly to the beneficiaries without going through probate c) both a and b above d) none of the above 103. Which of the following is not true regarding term life insurance: a) it provides protection for a specified term of years b) it has some cash value even if the insured does not die c) it is normally cheaper than whole insurance, especially when the insured is relatively young d) it has value only if the insured dies 104. For a young person, which of the following types of life insurance is generally the least expensive: a) whole life b) variable life c) term life d) universal life 105. Which of the following is true regarding the taxation of insurance proceeds: a) proceeds paid for by reason of death generally are excluded from income b) veteran s insurance proceeds are taxable to the veteran s beneficiaries c) accelerated death benefits cannot be excluded from income 106. Variable annuities are typically invested in: a) futures contracts b) hedge funds c) mutual funds d) certificates of deposit 107. Variable annuities are designed to be what type of investments: a) short-term investments b) either long- or short-term investments c) long-term investments d) speculative, high-risk investments 108. Which of the following are charges commonly involved in the purchase of a variable annuity: a) surrender charges b) mortality and expense risk charges c) administrative fees 109. Which of the following is not true regarding trusts: a) trusts are flexible b) a trust must be created during the life of the donor c) trusts can be either revocable or irrevocable d) a trust must have some identifiable trust property 110. Which of the following is true regarding the creation of trusts: a) to create a valid trust there must be a declaration b) a trust that involves real property generally can be either oral or in writing c) for a trust to be valid, property must be formally handed over to the trust 111. When selecting a trustee: a) only one can be named in the trust b) an alternate can be named in the event the first one becomes unwilling or unable to serve c) under no circumstances can the donor also act as the trustee Exam Page -16

18 112. Which of the following is true regarding revocable living trusts: a) they are a way to avoid estate and income taxes b) their effect is normally transparent for the individual who creates it c) they generally can be created by one or both spouses d) they can be changed after the death of the trustor 113. Which of the following can be created to last forever: a) a revocable living trust b) a discretionary trust c) a charitable trust d) a testamentary trust 114. Testamentary trusts can be used to do all of the following except: a) to provide financial support for a surviving spouse while preserving the assets for children upon the death of the surviving spouse b) to provide for the premiums to pay for a life insurance policy c) to provide for the care of beneficiaries who are minors d) to care for incompetent beneficiaries 115. Which of the following is true regarding Coverdell ESAs: a) only one Coverdell ESA account can be established for a designated beneficiary b) total contributions for a designated beneficiary cannot exceed $2,000 in any year c) all earnings on contributions will be taxable when distributed d) the benefits apply only to higher education expenses 117. Which of the following is not true regarding a Qualified Tuition Program (QTP): a) the funds in a QTP grow tax-free b) proceeds from a QTP can be used for elementary, secondary, or higher education c) any family can contribute to a QTP account, regardless of income d) the proceeds from a QTP can be used for tuition fees, room and board, and books 118. A taxpayer who makes a withdrawal from an IRA to pay for qualified higher education expenses for himself or herself will: a) owe federal income tax on the amount withdrawn b) be subject to the 10 percent early withdrawal penalty c) both a and b above d) none of the above 119. Which of the following is a qualification for the American Opportunity credit: a) the student cannot have completed four years of post-secondary education b) the student must be enrolled at least half-time c) the student must be free of any federal or state drug felony 120. The lifetime learning credit is generally limited to: a) the first two years of educational expenses b) $2,000 per eligible student per year c) $2,000 per return per year d) $1,800 per eligible student per year Congratulations you ve completed the exam! 116. Contributions to Coverdell ESAs must: a) be in cash b) be made prior to the beneficiary reaching age 18 (unless a special needs beneficiary) c) be made by the due date of the contributor s tax return (not including extensions) Exam Page -17

19 TAX ISSUES AND CONSEQUENCES IN FINANCIAL PLANNING #5505F/QAS5505F (24 CPE hours) ANSWER SHEET (8/12) Important Note: For certification, this answer sheet must be completed and submitted to PES for grading within one year from the date of purchase. Please use black ink and print for quicker processing thank you. Name (as it appears on your license) Address City State Zip Home Work Daytime Phone ( ) address (for online grading) License Number State Expiration Date CPA, CFP, EA (circle one) PTIN Number (if applicable) If course was ordered by another party, please indicate name here: GRADING OPTIONS Please choose only ONE of the following: ONLINE GRADING Visit our website at o Login to your account (if you are a first-time user, you must set up a new user account). o Go to the MY CPE tab and click the My CPE Exams in Progress folder. o If your exam is not already located in this folder, click Add Exam Previously Purchased and follow the instructions. Mail Mail your exam to: PES, 4208 Douglas Blvd., Ste 50, Granite Bay, CA Fax Fax your exam to (916) and choose one of the following options: Please: mail my results only or fax phone my results to: ( ) PLEASE INDICATE YOUR ANSWER BY FILLING IN THE APPROPRIATE CIRCLE A B C D A B C D A B C D A B C D A B C D 1. O O O O 25. O O O O 49. O O O O 73. O O O O 97. O O O O 2. O O O O 26. O O O O 50. O O O O 74. O O O O 98. O O O O 3. O O O O 27. O O O O 51. O O O O 75. O O O O 99. O O O O 4. O O O O 28. O O O O 52. O O O O 76. O O O O 100. O O O O 5. O O O O 29. O O O O 53. O O O O 77. O O O O 101. O O O O 6. O O O O 30. O O O O 54. O O O O 78. O O O O 102. O O O O 7. O O O O 31. O O O O 55. O O O O 79. O O O O 103. O O O O 8. O O O O 32. O O O O 56. O O O O 80. O O O O 104. O O O O 9. O O O O 33. O O O O 57. O O O O 81. O O O O 105. O O O O 10. O O O O 34. O O O O 58. O O O O 82. O O O O 106. O O O O 11. O O O O 35. O O O O 59. O O O O 83. O O O O 107. O O O O 12. O O O O 36. O O O O 60. O O O O 84. O O O O 108. O O O O 13. O O O O 37. O O O O 61. O O O O 85. O O O O 109. O O O O 14. O O O O 38. O O O O 62. O O O O 86. O O O O 110. O O O O 15. O O O O 39. O O O O 63. O O O O 87. O O O O 111. O O O O 16. O O O O 40. O O O O 64. O O O O 88. O O O O 112. O O O O 17. O O O O 41. O O O O 65. O O O O 89. O O O O 113. O O O O 18. O O O O 42. O O O O 66. O O O O 90. O O O O 114. O O O O 19. O O O O 43. O O O O 67. O O O O 91. O O O O 115. O O O O 20. O O O O 44. O O O O 68. O O O O 92. O O O O 116. O O O O 21. O O O O 45. O O O O 69. O O O O 93. O O O O 117. O O O O 22. O O O O 46. O O O O 70. O O O O 94. O O O O 118. O O O O 23. O O O O 47. O O O O 71. O O O O 95. O O O O 119. O O O O 24. O O O O 48. O O O O 72. O O O O 96. O O O O 120. O O O O Please complete the attached course evaluation your opinion is extremely valuable. Exam Page -18

20 Tax Issues and Consequences in Financial Planning #5505F/QAS5505F - Course Evaluation Rate on a scale of 1-10 with 1 being poor and 10 being excellent. 1. The course met the course objectives described in the promotional material. 2. The course was up to date, held my interest, was timely, and effective. 3. The course materials were understandable, valuable, and suitable for a correspondence course. 4. The amount of advance knowledge and stated prerequisites were appropriate. 5. The completion time was appropriate for the number of credits allowed. 6. The course met my professional education needs. Please answer the following questions mark/rate any and all that may apply 1. How would you rate PES s order desk customer service 2. What can PES do to keep you as a valued customer? 3. Any other comments regarding this course or our company would be appreciated. 4. What other courses/subjects would you like to see PES offer in the future? Mail to: Professional Education Services, LP 4208 Douglas Blvd., Ste 50, Granite Bay, CA Exam Page -19