Approaches to Treatment and Therapy Chapter 16 Chapter 16 16 - 1.
CHAPTER 16
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Transcript of CHAPTER 16
CHAPTER 16
Tax Planning:Concepts and
Strategies
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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
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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
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Five Ds ofTax Planning Techniques
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DEDUCTION Forgotten Deductions
Medical expensesMiscellaneous deductionsCharitable contributionsState 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
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DEDUCTIONS (Contd.)
Other DeductionsBusiness Expenses
May be taken care of on schedule CThis refers to expenses not included there.
Real Estate Losses
Rental ExpensesCan you convert a property into rental property to
take the expensesStay less than 14 days or 10% of the days rented out
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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
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DEFERRALS
Deferral with Pre-tax DollarsTraditional IRA’s and company
retirement palns
Deferral with After-tax DollarsRoth IRA plansVariable annuities
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DEFLECTION
Kiddie Tax1st $850 is tax exempt; next 850 taxed at the
child’s rate (10%); if under 18 Next then reverts to parent’s tax rate
GiftsBasis is the original basis for the donor; but if
income generating then the taxes would no longer be “owed” by the parent.
Child EmploymentKids can earn up to %350 with tax, also might
not have to pay FICA if a small business
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DIMINUTION
Income DeferralMove income to later years
Income AccelerationItemized Deductions to Accelerate or
Defer IncomeState Income TaxCharitable ContributionsContribution of Appreciated PropertyMedical ExpensesAccelerating Interest Deductions
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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
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DIMINUTION (Contd.)
Expense ShiftingAlternative Minimum TaxSocial Security BenefitsSplitting Business Income
Form family partnershipsMutual Fund Sales
Instruct dealer to sell the highest cost sharesS Corporation Strategy
Taxed like partnerships
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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