1. CHAPTER 16 Tax Planning: Concepts and Strategies Chapter 16: Tax Planning1

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 Planning2

3. I NTRODUCTION  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 Planning3

4. Five Ds of Tax Planning Techniques Chapter 16: Tax Planning4

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 Planning5

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 Planning6

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 Planning7

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 Planning8

9. DEFLECTION  Kiddie Tax  1 st $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 Planning9

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 Planning10

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 Planning11

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 Planning12

13. Chapter 16: Tax Planning13 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