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Tax Strategies 101

Tax Strategies 101. University of Missouri Medical School February 16 th , 2011 Presented By: Evan McGinnis Financial Advisor And James Pommert Financial Advisor. Key Tax Strategy Overview. Tax Basics Deductions vs. Credits  Student Loans  Education Credits 3) IRA vs. Roth IRA

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Tax Strategies 101

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  1. Tax Strategies 101 University of Missouri Medical School February 16th, 2011 Presented By: Evan McGinnis Financial Advisor And James Pommert Financial Advisor Securities and investment advisory services through Securian Financial Services, Inc.,Member FINRA/SIPC. Renaissance Financial is independently owned and operated. 5700 Oakland Ave. Suite 400 St. Louis, MO 63110

  2. Key Tax Strategy Overview • Tax Basics • Deductions vs. Credits  Student Loans  Education Credits 3) IRA vs. Roth IRA  Tax advantages and disadvantages 4) Tax Strategy  Know the Law  Know Your Limits 5) Legal Strategies • 1040 Example • Advanced Tax Strategies

  3. Tax Basics • AGI • Schedule A • 1040 • W-2 • 1099 • 1098-E

  4. Deductions vs. CreditsWhat is the real difference???? Example A: $1,000 Deduction Example B: $1,000 Credit • Individuals taxable income from employment is $100,000. • They would be in the 28% tax bracket • For every $1,000 they deduct they will pay $280 less in taxes. • Individuals taxable income from employment is $100,000. • They are also in the 28% tax bracket • They receive a credit for $1,000. • Instead of paying $280 less in taxes they will actually pay $1,000 less in taxes.

  5. Deductions vs. Credits Deductions Credits Student Loan Interest Mortgage Interest Individual ($5,700) Joint ($11,400) Charity Health Insurance Premiums State Taxes Personal Property Taxes Savings for College IRA Education Adoption Child Care Dependent Care Earned Income Tax

  6. IRA vs. Roth IRA IRA Roth IRA • Works the same way as a 401k • Money is deducted from your taxable income • Invested in the market and you pay taxes when you withdraw money. • Magic age is 59 ½ with no penalty • Opposite of a IRA • Money is paid in after it is taxed. • The money is invested in the market and you never pay taxes on it again. • As long as you also wait until the Magic age of 59 ½ • In addition you always have access to the original money put in without tax burden or penalties.

  7. Tax Strategies Disability Insurance Employer Paid Disability Insurance Personal Policy • Taxable Benefits • Non-Portable • More Restrictive Definition of Disability • You Own and You Pay • Tax Free Income Benefits • Portable • Better Riders Such as: • Future Income Purchase Options • Own Occupation Rider • Residual Disability

  8. Tax Strategies • Know the Law • Capital Gains • Income • Dividends • Change from Year to Year (ex. C-corp) • Know Your Limits • Contributions to 401k (maximum is $16,500) • Income Limits: • IRA ($56,00 single filers, $89,000 for joint filers) with a max contribution of $5,000 • Roth IRA ($106,000 single filers, $167,000 for joint filers) with a contribution max of $5,000 Financial advisors do not provide specific tax strategies. This information should not be considered specific tax strategies. You should consult your tax advisor for your own specific tax situation.

  9. Legal Strategies • Trusts • Need a legal perspective on ways to save taxes. • All of an individuals assets are included in an estate. • By establishing trusts individuals can minimize the amount of taxes their heirs must pay Financial Advisors do not provide legal advice. This information should not be considered as specific legal advice. You should contact your legal advisor for your own specific legal situation.

  10. Debt Management Tax Implications • Good Debt vs. Bad Debt • Good Rate vs. Bad Rate Example: May be more beneficial to buy a house then to rent. You can deduct your interest paid on the mortgage, reducing your taxable income and putting more money in your pocket. 234238 DOFU: 9/2010

  11. 1040 Tax Return

  12. Schedule A

  13. Advanced Tax Concepts: Captive Insurance Companies • Example • Malpractice insurance • Scenario: • 6 neurosurgeons in Florida • Each pays $75,000/annual premium for $600,000 in coverage. $450,o00 total for practice

  14. Advanced Tax Concepts: Captive Insurance Companies • Establish a Captive • Specific risk is underwritten • Tax deductible contributions • reduces the taxes you pay each year • Cash builds in captive for physicians • Cash is invested and grows • Can be used to pay for future premiums • Distributed at capital gains rates not income rates • 15% vs. 35%?

  15. Advanced Tax Concepts: QPRT • Qualified Personal Residence Trust • Affluent physicians that own property • Primary Residence • Lake/Ocean/City homes & condos • Any Vacation • Tax saving strategy for a physician's heirs • Transfers assets to the next generation in a tax efficient manner

  16. QPRT’s: Scenario One • Physician does not establish a QPRT and passes 20 years from now • Current value of $1 million • 3% annual appreciation of the property • Worth over $1.8 million at TOD! • $1.8 million enters into estate and is fully taxable • 2011 – 35% • $630,000 tax bill

  17. QPRT’s: Scenario Two • Physician establishes a QPRT and passes 20 years from now • Deed the home into the QPRT • Retain the right to live in home for 15 years • Gift the right to the home after 15 years • Value of gift is PV of $1 million in 15 years at 4.6%*= $509,000 • Property appreciates 3% annually = $1.8 million • $1.8 million not taxable at death • Heirs save approximately $630,000

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