1. Class 2 Pacing Your Course Lasser text – 20 hours class time must do 2.5 chapters per hour

2. Filing Status Most Important Decision = what tax rate tax use when filing and What form to use, 1040 or 1040NR See tax rate chart p 757 / Drake Publication Go to irs.gov to get forms 1040 / 1040NR / filing instructions

3. Single Unmarried persons, whether never married or divorced. In certain cases – married persons who live apart (marriage breakdown)

4. Married Legally married, not common law Both spouses must have SSN or ITIN Whether in USA or outside USA. Special rules for NR spouses

5. Head of Household Unmarried persons supporting a child as dependent. Married US citizens living outside USA who contribute significantly to family income, e.g. ½ Significance is the lower tax rate that applies.

6. Limiting Liability of a Spouse Innocent spouse rules. Applied to situations where MFJ as both sign the returns Pre- 2000 both spouse jointly liable for tax New rules are evolving every day to provide relief to the innocent party.

7. Children A child under the Age of 18 Special rules for children who are in school between 18 –24 = may be dependents Use $850 income child must file and use f 8615 to figure tax, see form ***

8. Aliens Green card, TN, H1B, etc. on a visa Not US citizens Treated as residents if substantial presence test applies.

9. H1B H2B TN F1 EB1 to EB5 Green Card Types of Visas

10. “Ordinary Rule” Resident Non Resident Exceptions Definition of : sojourn temporary stay Rules

11. Substantial Presence Closer Connection (form) Fewer than 183 days in current year Tax home in foreign country for entire year Closer ties with Canada rather than US Importance of dates spent in U.S.A.

12. Income Adventure in the nature of trade Return on capital – investment income Capital Gains Passive vs. active Wages, salaries and benefits Specified items, scholarships and bursaries

13. Active - Wages, Salaries etc. Sweat involved Includes benefits Specific rules are important for various types

14. Fringe Benefits Lasser Chapter 3 – slides

15. Passive Income Does not involve sweat Rentals – 750 hours per year determines whether passive or active Investment income generally is passive Why important: - stop loss rules for passive sources of income

16. Dividends and Interest Qualified Dividends 2007 – are taxed at 5% (where tax rate is <15%) or 15% where tax rate exceeds 15% - taxed on form with long terms capital gains. 2008 - 5% rate is nil. Life insurance – not income until aggregate premium cost is recovered (generally viewed as return of capital)

17. S Corps and Partnerships Flow through entities Owners are taxed on profits Dividends from S Corps are not income Same for Estates and trusts, REITs Tax slips are important and show treatment

18. Stock Dividends Generally – not taxable as not a distribution from retained earnings – merely an increase in the issued shares in number Some exceptions exist, must know how company accounted for issuance of stock. Dividends in kind are taxable, i.e., property Constructive stock dividends

19. Tax exempt interest Municipal bonds, etc. – must be reported, tip p. 79 >>>> AMT - Tax preference item Bad news: Canada does not recognize exempt status and will tax to Canadian residents Joint accounts – nominee form req’d 1096 “convience accounts” – are taxed to contributor not joint.

20. Interest misc. items Discounts and premiums on bonds must be recognized as income or a reduction of income on page 1 of 1040. Does it matter which spouse reports income? – discuss Gift loans <$100K - imputed interest is limited to borrower’s net investment income P95

21. State and Local Tax Refunds Only taxable if you itemized deductions and claimed the cash basis for the deduction in the prior year. If you used accrued method – not taxable

22. Sale of Property – day 4 – Bisk Text October – will discuss this

23. Short Term Gains Taxed at normal marginal rates Gain is calculated as: Proceeds $ Less “Basis” – similar concept to ACB Losses are limited to $3K (MFJ) in a year - balance is carried forward - $1.5K (MFS)

24. Death of Spouse Deduct on final tax return of deceased all loss carry forwards. Spouse is prohibited from deduction going forward p 103

25. Sale of Small Business Stock Exclude 50% profit; Must be held > 5 years Exclude 60% profit from empowerment zone – p105

26. Long Term Gains Holding period > 1 year NB 5% and 15% tax rate apply 5% (2007) where tax rate is >15% Otherwise 15% rate applies Schedule D – is important P108-109 calculations

27. Gifts and Inheritance Inherited property – deemed 1 year + holding period Estate tax may apply – day 5 If estate tax is paid – basis is increased You generally inherit the donor’s basis

28. Retirement Income Private pensions - periodic and lump sum payments Social Security 401Ks / 403Bs IRAs – Regular IRAs – Roth

29. Form 1099 P 150 – Lump Sum Gross and taxable amount can be different Employer must withhold 20% on lump sum distributions, Treaty ART XVIII technically only applies to periodic payments. Averaging – will not apply if previous rollover made. – form 4972

30. Roth IRAs Not deductible when contributed Not income – ever! Rollovers from qualified plans – 403b and 457 AGI (MFJ), $100 K Rollovers are irrevocable

31. Penalties 10% tax applies in addition for early withdrawal of pensions p157 < 55 years except is special circumstances, disabled, exceptional medical expenses etc.

32. Chapter 7 Detailed rules for many items – read and make notes

33. 401K Pensions – under the Treaty, Harrah! CRA treatment – tax contributions and tax benefits no longer applies Transition rules not yet on the table for those who were penalized in the past.

34. 401K Similar treatment to RRSPs. Contributions are exempt from gross income (both employee and employer) Grows tax free Benefits are taxable in year received Elective deferral limits, note p 166 Subject to age limitations for withdrawal

35. Annuities Return of capital is exempt Non-deductible contributions Detailed rules on calculation of taxable amounts Life expectancy tables p 174

36. Qualified Hurricane Distributions P 219 Preference item Will change with the weatherents and Royalties

37. Rents and Royalties Cash basis taxpayer Advances are taxable Offsets for tenants improvements; in and out on rental statement at FMV Insurance recoveries are rental income Rental losses are limited to active participation

38. Rents and Royalties Renting to family – use FMV Personal use – take out that % from expenses M/b rented > 15 days in a year Profit motive required, chapter - -10

39. The end- income!