©2015, College for Financial Planning, all rights reserved. Welcome

Expectations of Students Time/energy commitment Read assignments before class Tested on all LOs This course will enable you to: o be eligible to sit for the CFP ® Certification Examination o better serve clients/ grow your business o be successful on the College’s end-of- course examination 1-2

The quality of your Internet-streamed session depends on your connection: Reboot your PC before each session to refresh memory. Directly connect to the Internet. Delete cookies and temporary Internet files each week. Close other programs while attending your live online class. Before each session, in your live class, go to Meeting then Audio Setup Wizard to adjust your settings. These steps resolve 90% of issues. For Optimal Performance 1-3

Housekeeping Items 1. Professor contact information in eCampus 2. Tutorial in Lobby 3. Status changes 4. Text chat 5. Files for students 6. Recordings 7. Access Poll Layout 1-4     

©2015, College for Financial Planning, all rights reserved. Session 1 Form 1040—Above the Line CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Income Tax Planning

Session Details Module1 Chapter(s)1 and 2 LOs1-1 Describe terms related to income taxation. 1-2 Identify the steps in the tax calculation process. 1-3 Identify items of inclusion, exclusions, deductions, or tax credits. 1-4 Analyze a situation to calculate total income for tax purposes. 1-5 Analyze a situation to calculate adjusted gross income. 1-6

Steps in the Calculation Process Determine total (gross) income for tax purposes. Subtract adjustments to income. Equals AGI Determine allowable itemized deductions. Subtract allowable itemized deductions, or standard deduction, from adjusted gross income. 1-7

Steps in the Calculation Process Determine personal exemption amount that can be claimed. Calculate taxable income. Calculate tax using appropriate tax rate schedule or tax table. Subtract tax credits and add additional taxes to determine tax liability. 1-8

Form

Total Income 1-10

Adjusted Gross Income 1-11

Adjustments to Income Qualified education (student loan) interest Educator expense deduction (through 2014) Tuition and fees deduction (through 2014) IRA deductions Keogh contributions (for business owner) Discrimination lawsuit expenses Penalty on early withdrawal of savings Alimony deduction — Module 7 One-half of the self-employment tax — Module 8 Jury duty fees paid over to employer Equals AGI: THE LINE 1-12

Individual Retirement Accounts Contribution limit: 100% of earned income up to $5,500 (spousal IRAs allowed), $1,000 age 50 catch-up No MAGI (AGI w/out the IRA) limits for deduction if taxpayer is not active participant Deductibility may be limited if taxpayer is treated as active participant o DC plan—any annual additions (employee or employer contributions, or forfeitures) o DB plan—eligible to participate o More details in Retirement Planning course 1-13

IRA Deductibility Single MFJ both active Full $98,000 AGI Full $61,000 AGI $71,000 AGI $118,000 AGI Partial None Active Participants (2015) 1-14

IRA Deductibility Active Participants (2014) Married Filing Jointly, One Spouse Active Active Spouse Full $183,000 AGI Full $98,000 AGI $118,000 AGI $193,000 AGI Partial None Non- Active Spouse None 1-15

Basic Tax Planning Techniques Tax Avoidance o Use of exclusions, deductions, and credits Tax Deferral o IRAs, pension plans, etc. Conversion o Lower rates apply to LTCGs Income Shifting (discussed in Module 7) o Allows income to be taxed at potentially lower rates 1-16

Review Question 1 The following summarizes several financial events in the life of James Grant during the current tax year: o He received a $100,000 inheritance. o He had gambling winnings of $50,000. o He had itemized deductions of $10,000. o He paid student loan interest of $4,200. What is James’ total income for the current tax year? a.$35,800 b.$40,000 c.$50,000 d.$140,000 e.$150,

Review Question 2 Lowell and Thelma Jordan are married and will file a joint return for the current tax year. They have provided you with the following information: Based on the information given, what is Lowell and Thelma’s adjusted gross income for the current tax year? a.$77,000 b.$91,200 c.$92,000 d.$99,200 Lowell’s salary Thelma’s salary Unemployment compensation Net capital loss Private-activity municipal bond interest $60,000 $25,000 $10,000 $ 8,000 $ 4,

Review Question 3 Which one of the following is not a step in the tax calculation process? a.Determine total income b.Subtract adjustments to income from total income to get adjusted gross income c.Deduct the greater of itemized deductions or the standard deduction from AGI d.Determine the personal exemption amount that can be deducted e.Subtract credits from taxable income to compute net tax due 1-19

Review Question 4 Mary is an active participant in an employer-sponsored retirement plan, but her husband, Frank, is not. Their combined AGI for 2015 is $195,000. They each contributed $5,500 to an IRA this year. Which one of the following statements is correct regarding the deductibility of the IRA contributions? a.Neither Mary nor Frank may deduct an IRA contribution. b.Both Frank and Mary may deduct their IRA contributions. c.Frank may deduct his IRA contribution, but Mary may not deduct hers. 1-20

Review Question 5 Mildred is an active participant in an employer- sponsored retirement plan, but her husband, Franklin, is not. Their combined AGI for 2015 is $125,000. They each contributed $5,000 to an IRA this year. Which one of the following statements is correct regarding the deductibility of the IRA contributions? a.Neither Mildred nor Franklin may deduct an IRA contribution. b.Both Franklin and Mildred may deduct their IRA contributions. c.Franklin may deduct his IRA contribution, but Mildred may not deduct hers. 1-21

©2015, College for Financial Planning, all rights reserved. Session 1 End of Slides CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Income Tax Planning