Tax Considerations in Financial Planning

Tax Considerations in

Financial Planning

#6870FEXAM MATERIAL

6870F Final Exam • 1

TAX CONSIDERATIONS IN FINANCIAL PLANNING (COURSE #6870F)

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. No prerequisites. Course level: Basic. Course #6870F – 20 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 1: SUBJECTIntroductionTax Treatment of Investment IncomeDeductions of Investment ExpensesPassive and At-Risk RulesBasis of Investment PropertySale of a Home

Study the course materials from pages 1 to 106Complete the review questions at the end of each chapterAnswer the exam questions 1 to 21

Objectives:

• To recognize the proper tax treatment for various types of investment income• To identify limitations on the deductibility of investment expenses• To identify how the passive activity and at-risk rules affect the deductibility of investment losses• To recall what constitutes the basis of an investment• To recognize the tax rules that apply when an individual sells his or her main home

2 • 6870F Final Exam

ASSIGNMENT 2: SUBJECTRental Income and ExpensesMutual Fund DistributionsTaxation of Business EntitiesAlternative Minimum TaxTax Implications of Marriage and Divorce


Objectives:

• To identify some of the tax implications of owning a second home, whether or not for rental purposes

• To recall rules that govern the taxation of distributions from mutual funds• To recall various tax implications on an individual business owner that result from different forms

of business entities• To recognize items that affect the AMT calculation• To recognize the rules affecting the classification of marital property and how marriage or divorce

can affect income tax liabilities

ASSIGNMENT 3: SUBJECTEmployer-Sponsored Retirement PlansIndividual Retirement ArrangementsTaxation of Social Security Benefits

Study the course materials for pages 221 to 312Complete the review questions at the end of each chapterAnswer the exam questions 53 to 77

Objectives:

• To identify 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 the rules governing the benefits provided through the social security system


ASSIGNMENT 4: SUBJECTEstate and Gift TaxesTax Benefits for SurvivorsLife Insurance and Variable AnnuitiesTrusts as a Financial Planning ToolTax-Free Savings for Education


Objectives:

• To identify 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 and beneficiaries• To recognize characteristics of different types of life insurance policies and variable annuities• To identify the basics of various kinds of trusts• To identify tax benefits that may be available to individuals who are saving for and paying education

costs either for themselves or their dependents• To identify the compilation and review reporting requirements for an entity that elects the VIE

accounting alternative

ASSIGNMENT 5:• Complete the Answer Sheet and Course Evaluation and submit to PES

NOTICE

This course and test have been adapted from supplemental materials and information contained in the materials entitled Tax Considerations in Financial Planning. Use of these materials or services provided by Professional Education Services, LP (“PES”) is governed by the Terms and Conditions on PES’ website (www.mypescpe.com). PES provides this course with the understanding that it is not providing any accounting, legal, or other professional advice and assumes no liability whatsoever in connection with its use. PES has used diligent efforts to provide quality information and material to its customers, but does not warrant or guarantee the accuracy, timeliness, completeness, or currency of the information contained herein. Ultimately, the responsibility to comply with applicable legal requirements falls solely on the individual licensee, not PES. PES encourages you to contact your state Board or licensing agency for the latest information and to confirm or clarify any questions or concerns you have regarding your duties or obligations as a licensed professional.

© Professional Education Services, LP 2020

Program Publication Date 10/7/2020


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TAX CONSIDERATIONS IN FINANCIAL PLANNING (COURSE #6870F)

EXAM INFORMATION

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 100 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 Considerations in Financial Planning course (#6870F) qualifies for 20 CPE hours.

PROCESSING: You must score 70% or better to pass. If you mail or fax your exam, 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. When completing your exam online, grading is instantaneous. Upon achieving a passing score, the completion certificate is immediately available in your account under “My Completed CPE.” Please note: failed exams may be retaken. Per NASBA and AICPA guidelines, missed questions cannot be indicated until after you pass.

GRADING OPTIONS – Please choose only ONE of the following:

GRADING OPTIONS: Please choose only ONE of the following. If mailing or faxing, make sure to fill out your Answer Sheet completely prior to submitting it.

• ONLINE GRADING –Visit our website at http://www.mypescpe.com. Login to your account (if you are a first-time user, you must set up a new user account). Click on the course title of the exam you wish to take. Once all answers have been selected, click the “Submit/Grade Answers” button at the bottom of the page for instant grading and certification. If you do not see the exam listed, click on “My CPE in Progress.” Click on the “Add Exam to Account” button and follow the instructions.

• MAIL – Your exam will be graded and your certificate of completion mailed to you within one business day. Your certificate will be dated according to the postmark date. Please mail your Answer Sheet to:

Professional Education Services, LP4208 Douglas Blvd., Ste 50

Granite Bay, CA 95746

• 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. 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) 791-4099.

THANK YOU FOR USING PROFESSIONAL EDUCATION SERVICES.



TAX CONSIDERATIONS IN FINANCIAL PLANNING (COURSE #6870F) – 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 taxableB. interest on a Roth IRA is generally not

taxableC. interest on a traditional IRA is tax deferredD. both B and C above

2. Market discount arises when the value of a debt obligation decreases after its issue date, generally due to which of the following:

A. escalating oil pricesB. an increase in interest ratesC. a decrease in interest ratesD. both A and C above

3. When would distributions of stock dividends and stock rights be taxable:

A. if the investor or any shareholder has the choice to receive cash or other property instead of stock or stock rights

B. if the distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders

C. if the distribution is on preferred stockD. all of the above

4. Which of the following is generally a “passive” activity:

A. one in which the investor does not materially participate

B. any rental activityC. a business that is losing moneyD. both A and B above

5. Generally, taxpayers can use losses from passive activities only to offset income from which of the following:

A. other passive activitiesB. any activities in which the taxpayer is less

than a 50% ownerC. activities regulated by the Securities and

Exchange CommissionD. all of the above

6. Which of the following is true regarding the deduction of investment interest expense:

A. the deduction is generally limited to the amount of the investor’s net investment income

B. a taxpayer cannot carryover any unused investment interest expense to the following year

C. both A and B aboveD. none of the above

7. Which of the following is a nondeductible expense associated with investments:

A. interest on money borrowed to buy a single-premium annuity contract

B. interest on money borrowed to buy a single-premium life insurance contract

C. expenses incurred to produce tax-exempt income

D. all of the above

8. Which of the following is required to deduct investment interest expenses:

A. the taxpayer must have investment income greater than $10,000

B. the taxpayer must itemize deductions on Schedule A (Form 1040 or 1040-SR)

C. the taxpayer must use the cash methodD. the taxpayer cannot include any short sale

expenses


9. For individuals who use the cash method, when can deductible investment-related expenses, such as interest, be deducted:

A. at any time selected by the taxpayerB. in the year in which they are paidC. when the liability is incurredD. any time within three years of the date the

expense was incurred

10. The passive activity loss rules apply to all of the following except:

A. individualsB. partnershipsC. personal service corporationsD. closely-held corporations

11. A rental activity is a passive activity, even if an individual materially participated in that activity, unless he or she is which of the following:

A. a building or apartment manager B. a real estate professional C. the owner of the propertyD. an off-site real estate property management

firm

12. Which of the following is correct regarding active participation:

A. it includes limited partners in a partnership’s rental real estate activities

B. it is less stringent than material participationC. it is more stringent than material participationD. it is the same as material participation

13. Under what circumstances is an individual considered at risk in any activity:

A. for contributing money or adjusted property basis to the activity

B. for borrowing money used in the activity where he or she is personally liable for repayment

C. for using nonrecourse financing in the activity D. both A and B above

14. When an investor purchases property, which of the following is correct regarding his or her basis in the property:

A. it is generally its fair market valueB. it is usually the amount paid in cash, debt

obligations, or other property or servicesC. it includes any stated or unstated interestD. it is not an important measurement

15. To figure the basis for property received as a gift, what must the owner know:

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

D. all of the above

16. 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 usually 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


17. If an individual has more than one home, when can he or she exclude the gain from its sale:

A. only if the home was a condominium and owned for one year

B. only if the home was a houseboat and owned for less than two years

C. only if the home was a vacation home and sometimes rental property

D. only if the home was the individual’s main home, owned and lived in for at least two of the last five years

18. 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 his or her 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

19. Which of the following would an individual add to the basis of his or her property:

A. putting on a new roofB. repainting the outside of a houseC. replacing broken windowsD. repairing plastering

20. 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 $250,000

21. 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

22. 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 rentC. security deposits (intended to be returned at

the end of the lease)D. payments made by the tenant to cancel a

lease

23. 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


24. 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

25. 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 for what period of time:

A. more than 14 days during the yearB. more than 10% of the total days it is rented

to others at a fair rental priceC. more than the lesser of A or B aboveD. more than the greater of A or B above

26. 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” in which of the following circumstances:

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. all of the above

27. Most investment property placed in service after 1986 is depreciated using which of the following methods:

A. straight-line methodB. declining balance methodC. ACRS methodD. MACRS method

28. A mutual fund is an example of which of the following:

A. an open-end companyB. a closed-end companyC. a unit investment trustD. any of the above

29. 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 fundC. it is subject to numerous regulations for the

protection of investorsD. it is a financial instrument whose

performance is derived from the performance of an underlying security

30. Which of the following generally has the lowest risk as compared to the others:

A. hedge fundsB. money market fundsC. bond fundsD. stock funds

31. 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

32. According to the rules of the FINRA, a front-end load cannot be higher than how much:

A. $50B. 5% of the investmentC. 8.5% of the investmentD. $1,000


33. The fees and charges an investor pays to acquire or redeem shares of a mutual fund are _________ deductible.

A. alwaysB. frequentlyC. sometimesD. not

34. When mutual fund shares are acquired by gift, and the FMV is less than the adjusted basis at the time of the gift, what is the recipient’s basis for loss:

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

35. 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 what type of exchange:

A. like-kind B. non-taxableC. wash-saleD. taxable

36. 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. 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

37. The self-employment tax consists of two parts. What are the two parts:

A. federal withholdings and state withholdingsB. social security and federal withholdingsC. social security and MedicareD. Medicare and state withholdings

38. 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. oneB. twoC. fiveD. ten

39. A multi-member LLC wishing to file as a corporation must file which of the following:

A. Form 1040B. Schedule K-1C. Form 1065D. Form 8832


40. Each LLC member’s share of profits and losses are set out in which of the following:

A. the by-lawsB. the Articles of IncorporationC. the operating agreementD. none of the above

41. 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

42. Which of the following organizational expenses can be amortized by a partnership:

A. acquiring assets for the partnershipB. making a contract relating to the operation of

the partnership trade or businessC. filing feesD. all of the above

43. Which of the following is correct 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

44. Which of the following is correct regarding S corporation status:

A. it must be elected by at least 50% of its shareholders

B. it can be made any time during the corporation’s taxable year

C. it requires that the corporation be duly organized under the laws of its state of organization

D. all of the above

45. Which of the following is an example of a tax preference item when calculating the AMT:

A. itemized deductionsB. tax-exempt interest from certain private

activity bondsC. personal exemptionsD. passive activity loss limitations

46. Which of the following is correct regarding children and the AMT:

A. children cannot be subject to the AMTB. children are allowed the normal AMT

exemption for single individualsC. children are allowed an exemption for AMT

purposes of $7,900 plus earned income (in 2020)

D. the limit on the standard deduction for children when calculating the AMT is $1,050

47. Which of the following is correct 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

D. all of the above


48. 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 forwardC. the MTC is computed only on deferral itemsD. 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

49. To establish a classification of separate property by a party domiciled in a community property state, acceptable evidence does not include which of the following:

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

50. Community property would generally include all of the following if they occurred in a community property state except:

A. real property purchased during a marriageB. 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

51. Which of the following is the determining factor as to proving where an individual is domiciled:

A. where the individual pays state income taxB. citizenshipC. amount of time spent in one placeD. intent

52. Which of the following is correct regarding a prenuptial agreement:

A. it is nothing more than a contract between two persons that governs the distribution of marital assets at the time of the dissolution

B. it is generally enforceableC. it 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

D. all of the above

53. Which of the following is a disadvantage of qualified plans as compared to either SEP or SIMPLE plans:

A. more complex rules to followB. less flexibility in designing the plansC. decreased contribution limitsD. decreased deduction limits

54. 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

55. In 2020, what is the limit on how much an employer can deduct for its contributions to a participant’s SEP-IRA:

A. the employer’s contributions (including any excess contributions carryover)

B. 25% of the compensation (limited to $285,000 per participant) paid to the participants during 2020, not to exceed $57,000

C. the lesser of A and B aboveD. the greater of A and B above


56. Generally, the election period for a SIMPLE plan is how many days immediately preceding January 1 of the calendar year:

A. 10B. 30C. 45D. 60

57. SIMPLE IRA contributions are not subject to which of the following:

A. federal income tax withholdingB. social security taxesC. Medicare taxesD. all of the above

58. There are how many basic qualified plan types:

A. oneB. twoC. threeD. five

59. What is the deduction for contributions to a defined benefit plan 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 computationsD. none of the above

60. Which of the following is not true regarding distributions from qualified plans:

A. distributions may be non-periodicB. certain loans may be treated as distributionsC. periodic distributions are permittedD. each participant must receive his or her

entire benefits in the plan by the required beginning date

61. Generally, distributions cannot be made from a 401(k) plan until when:

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

62. The initial tax on a prohibited transaction is what percentage of the amount involved for each year (or part of a year) in the taxable period:

A. 6%B. 10%C. 15%D. 100%

63. Under what circumstances can an individual set up and make contributions to a traditional IRA in 2020:

A. if the individual (or, if filing a joint return, his or her spouse) received taxable compensation during the year

B. if the individual was not age 70½ by the end of the year

C. both A and B aboveD. none of the above restrictions are relevant to

traditional IRAs

64. Compensation for purposes of an IRA does not include which of the following:

A. commissionsB. self-employment incomeC. alimony and separate maintenanceD. deferred compensation


65. Which of the following is not true regarding a traditional individual retirement account in 2020:

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 72

66. 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

67. Contributions can be made to a traditional IRA for the year up until when:

A. December 31 of the taxable yearB. the due date for filing the return for that year,

not including extensionsC. the due date for filing the return for that year,

including extensionsD. December 31 of the following taxable year

68. 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. canB. can if over age 62C. cannotD. cannot if over age 62

69. 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

70. Generally, if an eligible rollover distribution is paid directly to an individual, how much must the payer withhold:

A. $100 per rolloverB. 10% of the rollover distribution amountC. 20% of the rollover distribution amountD. 50% of the rollover distribution amount

71. 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

72. 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 what rate:

A. 6%B. 10%C. 20%D. 50%


73. 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

D. all of the above

74. 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 of how much:

A. 6%B. 10%C. 20%D. 50%

75. Which of the following is correct regarding an individual’s social security benefits:

A. higher lifetime earnings result in higher benefits

B. benefits are the same for all individuals with the same number of credits regardless of an individual’s earnings over the years

C. an individual’s benefits are not affected by the age he or she starts receiving benefits

D. an individual can start receiving benefits at age 59½

76. 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

D. all of the above

77. Which of the following is not true regarding a spouse’s social security benefits:

A. a spouse is entitled to receive one-half of the retired worker’s full benefit at 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, their benefits will be reduced proportionately

D. the amount of benefits a divorced spouse gets impacts the amount of benefits a current spouse can receive

78. Approximately how many estates are subject to the estate tax:

A. less than 1%B. 10%C. 50%D. 90%

79. 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



80. When is the alternative valuation date election for valuing an estate allowed:

A. only if assets cannot be liquidated within six months of the decedent’s death

B. only when the estate assets are made up of a closely-held family business

C. only if it lowers the individual’s tax liability D. only when the estate assets consist of family

farmland

81. Which of the following gifts is not exempt from gift tax:

A. a gift of $15,000 or less to one individual in 2020

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

82. When is an individual not required to file a gift tax return:

A. if an individual and his or her spouse are splitting a gift

B. if 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. if an individual gave a gift of qualified conservation property that is a restriction on the use of real property forever

D. if an individual gave his or her spouse an interest in property that will be ended by some future event

83. 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

D. all of the above

84. Which of the following is a tax benefit often available to survivors:

A. claim a filing status of qualifying widow(er) with dependent child if the survivor is a spouse

B. claim a filing status of married filing jointly during the decedent’s tax year of death if the survivor is a spouse

C. claim the earned income credit if the decedent was the survivor’s qualifying child

D. all of the above

85. If a beneficiary transfers his or her right to income in respect of a decedent, what must the beneficiary include in his or her income:

A. the amount he or she received for the rightB. the fair market value of the right he or she

transferredC. the greater of A or B aboveD. the lesser of A or B above

86. Wages paid as income in respect of a decedent during the calendar year of death are not subject to which of the following:

A. federal income tax withholdingB. social security taxesC. Medicare taxesD. any of the above

87. What is 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):

A. income in respect of a decedent B. income to the beneficiary C. forfeited by the decedent

D. income to the decedent’s estate


88. Generally, the balance in a Coverdell ESA must be distributed within what time period after the individual for whom the account was established reaches age 30 or dies, whichever is earlier:

A. 30 daysB. 3 monthsC. 1 yearD. 3 years

89. 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


90. 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

91. For a young person, which of the following types of life insurance is generally the least expensive:

A. whole lifeB. variable lifeC. term life

D. universal life

92. What are variable annuities typically invested in:

A. futures contractsB. hedge fundsC. mutual fundsD. certificates of deposit

93. Variable annuities are designed to be what type of investments:

A. short-term investmentsB. either long- or short-term investmentsC. long-term investmentsD. speculative, high-risk investments

94. Which of the following is not true regarding trusts:

A. trusts are flexibleB. a trust must be created during the life of the

donorC. trusts can be either revocable or irrevocableD. a trust must have some identifiable trust

property

95. 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

96. Which of the following can be created to last forever:

A. a revocable living trustB. a discretionary trustC. a charitable trust

D. a testamentary trust


97. 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

98. 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

99. Which of the following is not true regarding a Qualified Tuition Program (QTP) in 2020:

A. the funds in a QTP grow tax-freeB. proceeds from a QTP can only be used for

higher educationC. any family can contribute to a QTP account,

regardless of incomeD. the proceeds from a QTP can be used for

tuition fees, room and board, and books

100. What is the lifetime learning credit generally limited to:

A. the first two years of educational expensesB. $2,000 per eligible student per yearC. $2,000 per return per yearD. $2,500 per eligible student per year

Congratulations –

you’ve completed the exam!



TAX CONSIDERATIONS IN FINANCIAL PLANNING #6870F (20 CPE HOURS) ANSWER SHEET (10/20)

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