Financial Planning Tax Strategies

As a result of studying each assignment, you should be able to meet the objectives listed below each assignment. ASSIGNMENT SUBJECT Chapter 1 Financial Tax Planning At the start of Chapter 1, participants should identify the following topics for study: * Goals v. purposes * Investment purposes * Myths of retirement * Investment goals * Investment needs of five critical decades * Investment vehicles & entities * Retirement - the ultimate objective * Retirement costs & income needs * Retirement plan development * Basic planning elements Learning Objectives After reading Chapter 1, participants will be able to: 1. Identify short-term financial goals and investment purposes, recognize the importance of defining, listing and prioritizing realistic goals specify-ing how investing allocation changes with age. 2. Determine the tax consequences of title holding methods by: a. Specifying ways to hold title to assets starting with the simplest and most direct way to hold property; b. Cite the tax benefits and drawbacks of co-tenancies, corporations (both C & S), partnerships, qualified retirement plans, and trusts partic-ularly as they relate to a client's after-tax investment return; and c. Identifying custodianship under the uniform acts and determining how an estate can be tax beneficial to taxpayers. 3. Recognize the impact of retirement planning postponement identifying the importance of early planning using the author's suggested step pro-cess, specify a balance sheet method to plan retirement, determine how to diversify portfolios by balancing liquid and nonliquid assets, and identify the purpose of savings and strategies to save. After studying the materials in Chapter 1, answer the exam questions 1 to 10. ASSIGNMENT SUBJECT Chapter 2 Building an Estate At the start of Chapter 2, participants should identify the following topics for study: * Types of income * Information reporting on taxable income * Rules of budgeting * Cash * Acquisition * Assets * Rules of management * Managing risk * Taxes * Leverage Learning Objectives After reading Chapter 2, participants will able to: 1. Identify money management specifying income types, recognize causes of increased taxable income for itemizing taxpayers, and specify taxable income types and their proper reporting. 2. Determine the distinctions between tax-free municipal bonds from fringe benefits in generating tax-free income, cite the benefits of tax de-ferral, and identify tax-deferred investments. 3. Specify ways to shelter income stating how income sheltering amplifies investment return. 4. Recognize the budgeting of income into cash by containing expendi-tures with the author's step process and discretionary income develop-ment, identify a client’s negative outlook on budgeting and counter strat-egies, determine how to convert income into assets by purchasing invest-ments, and specify asset acquisition rules. 5. Specify tax-advantage investments citing management rules, and de-termine the economic impact of accelerating deductions, postponing tax liability, and leveraging. After studying the materials in Chapter 2, answer the exam questions 11 to 23. ASSIGNMENT SUBJECT Chapter 3 Preservation of Wealth At the start of Chapter 3, participants should identify the following topics for study: * Obstacles to preservation * Tracking spending * Building savings * Designing a budget * Determining worth * Analyzing net worth * Ignorance * Inflation * Taxes * Tax planning tactics Learning Objectives After reading Chapter 3, participants will be able to: 1. Identify spending habits stating how to design a budget to increase dis-cretionary income, determine net worth using a balance sheet, and select assets and liabilities for an inventory on which to base financial goals. 2. Specify why individuals should take primary responsibility for the in-vestment planning including necessary self-education, determine the allo-cation of financial resources among investments to maximize return, and recognize the impact of inflation, risk versus return, and basic income tax planning tactics. After studying the materials in Chapter 3, answer the exam questions 24 to 28. ASSIGNMENT SUBJECT Chapter 4 Deferral At the start of Chapter 4, participants should identify the following topics for study: * Elements of like-kind exchanges * Related party exchanges * Personal & multiple property regulations * Delayed (deferred) exchange regulations * Actual & constructive receipt rule * Qualified contribution plans * Tax-deferred annuities * Installment sales * At-risk rule * Deferred compensation and options Learning Objectives After reading Chapter 4, participants will be able to: 1. Identify the benefits of tax deferral, recall the former use of tax deferral under §1034, and cite the tax deferral advantage under §1031 listing its elements. 2. Specify the related party §1031 restrictions identifying prohibited par-ties or entities and permissible disposition exceptions, cite recommenda-tions for the protection of exchange participants, and recognize the history of the multiple property regulations stating the unique netting require-ments for multiple asset exchanges. 3. Recall the evolution of delayed exchanges naming allowable transfers, determine how to select qualified replacement property, specify construc-tive receipt safe harbors & methods to secure exchange party perfor-mance, cite the §1031 partnership underlying asset rule, identify retirement plan design, identify popular methods for providing for retire-ment, and select near retirement investments. 4. Specify the requirements for an installment sale, determine how to elect out of the installment method, identify the variables affecting §453 availability, and determine how to use a property option to receive income and postpone tax. After studying the materials in Chapter 4, answer the exam questions 29 to 43. ASSIGNMENT SUBJECT Chapter 5 Reduction At the start of Chapter 5, participants should identify the following topics for study: * Work Opportunity Credit & Rehabilitation Credit * Low Income Housing Credit & Child & Dependent Care Credit * Estimated taxes * Interest * Automobile deductions * Business entertainment deductions * Depreciation & cost recovery * Net operating losses * Tax breaks for nonitemizers * Amended returns Learning Objectives After reading Chapter 5, participants will be able to: 1. Identify tax credits specifying qualified computational expenses, limi-tations, and restrictions. 2. Recognize the estimated tax rules and procedures including payment deadlines, underpayment penalties and the economics of overpaying esti-mated taxes, and specify the nondeductible interest types. 3. Determine the deductibility of investment interest, prepaid interest, points, and prepayment penalties recognizing the offset of passive income with rental property mortgage interest. 4. Identify business vehicle operating costs using (or switching between) the actual cost method or the standard mileage rate, recognize the im-portance of expense and mileage records, and specify depreciation traps when purchasing a vehicle. 5. Recall the requirements for business expenses to meet the directly re-lated test, cite the elements of the associated test, identify the business expense statutory exceptions, and recognize the application of R.R. 90-23 and R.R. 99-7 to the deduction of transportation costs to a temporary work location. 6. Determine business asset depreciation using both ACRS and MACRS recovery classes, identify sources of §172 net operating losses (NOLs) recognizing carryback and carryover rules, specify tax breaks for nonitemizing taxpayers, recognize the advisability of filing an amended return, determine how to avoid audits by claiming refunds for provable items stating which return amendments are safest. After studying the materials in Chapter 5, answer the exam questions 44 to 59. ASSIGNMENT SUBJECT Chapter 6 Income Splitting At the start of Chapter 6, participants should identify the following topics for study: * Using progressive tax rates * Deductible business expenses * Home-office deduction * C or regular corporations * S corporations * Family partnerships * Kiddie tax trap * Childcare & education * Gifts * Interest-free loans Learning Objectives After reading Chapter 6, participants will be able to: 1. Recognize formats for income splitting, determine the tax treatment of employee and self-employed business expenses particularly home-office expenses stating the two non-exclusive use exceptions and the income limitation, cite changes made to home office deduction under TRA ’97, and recognize the ability of self-employeds to make annual deductible contributions to a Keogh plan. 2. Identify the tax opportunities available to an unincorporated business including retirement plans, the hiring of family members, travel expenses, casualty losses, bad debts, and self-employment tax. 3. Determine the uses and tax characteristics of regular and S corporations by: a. Citing circumstances when incorporation is desirable, b. Recognizing the taxation of these entities including their ability to split income; and c. Specifying initial §351 formation and capitalization issues and iden-tifying appropriate tax form filings for each entity. 4. Recognize the use of partnerships to split income among partners in-cluding the use of §704(e) family partnerships and the consequences of gifting a partnership interest to a child or to another family member. 5. Identify the use of a custodianship to split income specifying planning considerations and good investments for children, recognize deductions and credits for childcare, education, children, and §7872 loans, and speci-fy the income and later estate tax benefits of gifts. After studying the materials in Chapter 6, answer the exam questions 60 to 72. ASSIGNMENT SUBJECT Chapter 7 Elimination At the start of Chapter 7, participants should identify the following topics for study: * $500,000 home sale exclusion * Municipal bonds * Divorce & separation settlements * Gifts & inheritances * Life insurance * Fringe benefits * Taxation & valuation of benefits * Employee expense reimbursement & reporting * Social security Learning Objectives After reading Chapter 7, participants will be able to: 1. Identify tax elimination techniques by: a. Recognizing the current §121 home sale exclusion citing its differ-ences with prior tax law; b. Determining qualifications for tax-free state or local obligations in-cluding private activity bonds; and c. Specifying the tax elimination aspects of family transactions such as gifts, bequests, inheritances, life insurance, and even divorce. 2. Recognize employer deductions as a means to increase tax-free incen-tive-based compensation for employees by: a. Specifying rules for excluding fringe benefits under §132 and their proper reporting on the W-2; and b. Identifying popular employee fringe benefits including employer paid accident & health coverage, meals or lodging, cafeteria plan bene-fits, §127 education assistance, achievement awards, group life insur-ance and dependent care assistance. 3. Determine how to value fringe benefits according to IRS regulations, identify how to comply with ERISA requirements, specify the proper re-porting of reimbursed and unreimbursed business expenses under ac-countable and nonaccountable plans, determine the substantiation of auto expenses using a fixed and variable rate, and specify eligible retirement benefits exempt from social security taxes. After studying the materials in Chapter 7, answer the exam questions 73 to 80. ASSIGNMENT SUBJECT Chapter 8 Estate Planning At the start of Chapter 8, participants should identify the following topics for study: * Unlimited marital deduction * Applicable exclusion amount * Stepped-up basis * Basic estate planning goals * Simple will * Types of trusts * Charitable trusts * Insurance trusts * Family documents * Private annuities Learning Objectives After reading Chapter 8, participants will able to: 1. Identify estate planning for business clients by: a. Selecting elements of estate tax planning that have remained un-changed by recent legislation; b. Recognizing the unlimited marital deduction and its effect on the gross estate of the value of property; and c. Specifying the applicable exclusion amounts for various years of death. 2. Determine the differences between “stepped-up basis” and repealed “modified carryover basis” for estate tax purposes. 3. Specify estate-planning goals and the benefits and drawbacks of the primary dispositive plans. 4. Identify the various types of trusts, specify family documents that every taxpayer should consider, and determine the advantages and disad-vantages of the former private annuity format.