A type of loss or tax credit that must be reduced as a result of the exclusion of debt cancellation from a taxpayer's gross income. Tax attributes are adjusted when a taxpayer declares bankruptcy. Tax attributes include net operating losses and carryovers, general business credit carryovers, alternative minimum tax credit carryovers, capital loss and foreign tax credit carryovers. Taxpayers who are forgiven debts as a result of bankruptcy do not have to include the forgiven debt as income, but certain tax attributes must be reduced by an amount proportionate to the amount of debt that has been forgiven. For example, if $5,000 in debt was forgiven, then the taxpayer could elect to have the basis of his/her rental property reduced by $5,000 and defer the tax until the property is sold. If the property is sold for a gain, then $5,000 of that gain will be taxed as ordinary income.
Distributing the balance of a participant's retirement account under a qualified plan without the written consent of the participant, the participant's spouse or beneficiary. Involuntary cash-out usually occurs if the participant’s balance is no more than $5,000 and he or she is either no longer employed by the employer sponsoring the qualified plan, or has died. Effective Mar 28, 2005, a qualified plan must ensure either that cash-out balances between $1,000 and $5,000 are rolled to a Traditional IRA (by means of an automatic rollover), or that cash-outs will not occur if the participant’s balance is more than $1,000.
The practice of profiting from differences between the way transactions are treated for tax purposes. The complexity of tax codes often allows for many incentives which drive individuals to restructure their transactions in the most advantageous way in order to pay the least amount of tax. Some forms of tax arbitrage are legal while others are illegal. Tax arbitrage can, for example, involve recognizing revenues in a low tax region while recognizing expenses in a high tax region. Such a practice would minimize the tax bill by maximizing deductions while minimizing taxes paid on earnings. It is suspected that tax arbitrage is extremely widespread, but by its nature, it is difficult to give precise figures as to what extent tax arbitrage is employed.
A client information form used by registered investment advisors and other asset managers that aids in determining the optimal portfolio mix for the client. An investment objective survey may come in the form of a questionnaire, where the investor will be asked things such as:-Current liquid and net worth -Risk aversion -Investing time horizon -Income levels -Expense levels -Planned bequeathments and/or charitable contributions -Restrictions on security selection An investment objective will typically not be completed by the investor until he or she has decided to use the services of the asset manager because this information is highly sensitive and is kept confidential. Portfolio managers will use the information obtained in an investment objective form to help create a customized portfolio within the client's risk profile. This form will be kept current as the client's goals change over the years, with new information being implemented into the client's portfolio and/or retirement plan.
A measure of the percentage that a consumer's income would have to adjust by in order to maintain the same level of purchasing power. The tax and price index (TPI) takes into account changes in retail prices due to inflation, as well as changes to direct taxes that reduce a consumer's disposable income. The index uses data collected in the United Kingdom. Unlike the retail price index (RPI), which uses changes in retail prices only, the TPI also takes into account other factors that affect real disposable income, namely taxes. An increase in both direct taxes and the price of retail goods would require a consumer's income to increase by more than an increase in retail prices alone. If direct taxes, such as income taxes, are reduced while the price of retail goods increases, the RPI will show a greater increase than the TPI.
An advisor who helps investors with their long-term investment planning. An investment consultant, unlike a broker, does more in-depth work on formulating clients' investment strategies, helping them fulfill their needs and goals. The idea behind an investment consultant is that they be part of the client's investment strategy for a long period of time. The consultant's job is to actively monitor the client's investments and continue to work with the client as goals change over time.
A financial expert with advanced training and knowledge of tax law. The services of a tax advisor are usually retained in order to minimize taxation while remaining compliant with the law in complicated financial situations. Tax advisors can include Certified Public Accounts, tax attorneys and financial advisors. Tax advisors and preparers are regulated but not licensed by the Internal Revenue Service. Treasury Department Circular No. 230. Reg. 10.33(a) of the circular outlines the duties of tax advisors. There can be penalties and disciplinary action for failing to follow the standards outlined by the IRS.
A pension plan that is tied to an individual's Social Security payments to determine the total benefit that the plan participant should receive.The actual amount sent to the recipient in a defined benefit integrated pension may be reduced by a dollar amount equal to all or a percentage of the person's annual Social Security payment. Some integrated plans have a specified total benefit in mind, and look for Social Security and pension funds to combine toward meeting that goal. In most cases, the pension amount can only be cut a maximum of 50%.
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