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CHAPTER 16

CHAPTER 16. Tax Planning: Concepts and Strategies. EIGHT PLANNING AREAS AGAIN. S : Safety through Risk Management Planning E : Educational Planning C : Cash Mgt., Savings, Credit, and Debt Planning U : Ultimate Disposition through Estate Planning R : Retirement Planning

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CHAPTER 16

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  1. CHAPTER 16 Tax Planning: Concepts and Strategies Chapter 16: Tax Planning

  2. EIGHT PLANNING AREAS AGAIN • S: Safety through Risk Management Planning • E: Educational Planning • C: Cash Mgt., Savings, Credit, and Debt Planning • U: Ultimate Disposition through Estate Planning • R: Retirement Planning • I: Investment Planning • T: Tax Planning • Y: Yearning for Financial Independence Planning Chapter 16: Tax Planning

  3. INTRODUCTION • Tax planning is concerned with timing and method by which income is reported and deductions and credits are claimed • Every taxpayer’s obligation is to minimize overall tax burden Chapter 16: Tax Planning

  4. Five Ds ofTax Planning Techniques Chapter 16: Tax Planning

  5. DEDUCTION • Forgotten Deductions • Medical expenses • Miscellaneous deductions • Charitable contributions • State and local income taxes • Flexible Spending Arrangement • Moving Expenses • Tax-Deductible Interest • Prepayment Strategy • Pay deductible expenses for next year this year • Marriage Penalty • Not as severe as previous times Chapter 16: Tax Planning

  6. DEDUCTIONS (Contd.) • Other Deductions • Business Expenses • May be taken care of on schedule C • This refers to expenses not included there. • Real Estate Losses • Rental Expenses • Can you convert a property into rental property to take the expenses • Stay less than 14 days or 10% of the days rented out Chapter 16: Tax Planning

  7. DIVERSION • Home Ownership • Municipal Bonds • Matching Incomes and Losses • Tax Shelters • Limited Partnerships • Master Limited Partnerships (MLPs) • Publicly Traded Partnerships (PTPs) • Personal Exemption • Transfer income generating assets to older children • Like-kind Exchanges • Charitable Donations • Charitable remainder or unitrusts Chapter 16: Tax Planning

  8. DEFERRALS • Deferral with Pre-tax Dollars • Traditional IRA’s and company retirement palns • Deferral with After-tax Dollars • Roth IRA plans • Variable annuities Chapter 16: Tax Planning

  9. DEFLECTION • Kiddie Tax • 1st $850 is tax exempt; next 850 taxed at the child’s rate (10%); if under 18 • Next then reverts to parent’s tax rate • Gifts • Basis is the original basis for the donor; but if income generating then the taxes would no longer be “owed” by the parent. • Child Employment • Kids can earn up to %350 with tax, also might not have to pay FICA if a small business Chapter 16: Tax Planning

  10. DIMINUTION • Income Deferral • Move income to later years • Income Acceleration • Itemized Deductions to Accelerate or Defer Income • State Income Tax • Charitable Contributions • Contribution of Appreciated Property • Medical Expenses • Accelerating Interest Deductions Chapter 16: Tax Planning

  11. DIMINUTION (Contd.) • Personal and Qualified Residence Interest • Consumer Loans • Mortgage Interest • Points • Investment Interest • Employee Benefit Expenses • Home Office Expense • Use of Personal Automobile for Business • Miscellaneous Deductions (2% Floor) • Business Meals, Entertainment and Travel • Club Dues Chapter 16: Tax Planning

  12. DIMINUTION (Contd.) • Expense Shifting • Alternative Minimum Tax • Social Security Benefits • Splitting Business Income • Form family partnerships • Mutual Fund Sales • Instruct dealer to sell the highest cost shares • S Corporation Strategy • Taxed like partnerships Chapter 16: Tax Planning

  13. GOLDEN RULES OF ACHIEVING FINANCIAL INDEPENDENCE • Six keys to success: • Live within means • Build up an emergency fund • Start saving early • Pay yourself first • Reach for higher returns • Know the limits of your knowledge Chapter 16: Tax Planning

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