Income Taxation in Personal Financial Planning Course number: X SPRING 2011

Transcription

1 Income Taxation in Personal Financial Planning Course number: X SPRING 2011 David R. Bergmann, CFP, EA, CLU, ChFC Managing Principal THE David R. Bergmann Group 4200 Via Dolce Avenue, Suite 227 Marina del Rey, CA Web: davidb@wealthadvisorygroup.com 310/ Vox 310/ Fax Course Description: This course examines the issues and determination of tax liability for numerous events and activities as they relate to the financial plan. Students are provided with the information and tools of income taxation necessary for making financial planning decisions within the context of either personal or client financial goals and objectives. Topics include tax issues and concepts in relation to insurance, investments, benefit planning, intra-family transactions, and business operations. Students are taught and asked to demonstrate an understanding of the following planning techniques: excluding income, deferring income, shifting income, and managing or timing income. Goals & Objectives: The goal of this course is to familiarize the student with the concepts and tools of income taxation as it relates to financial decisions within the context of either personal or client financial goals and objectives. Tax consequences of events or activities are explored as they relate to the financial plan. Students will be taught and asked to demonstrate an understanding of the following planning techniques: (1) excluding income, (2) deferring income, (3) shifting income, and (4) managing or timing income. To that end we will be looking at such things as managing tax liability (a) income characterization, adjustment(s), and shifting, (b) eligibility for, and judicious use of, deductible items;... asset accumulation with tax consequence minimization (a) purchasing and disposing of assets, (b) establishing and operating a business, (c) selecting qualified and non-qualified accumulation vehicles and maximizing benefit/compensation packages, and

2 ... integrating financial goals and objectives within the client's overall tax picture. Required Readings: West's Federal Taxation Comprehensive Volume 2011 Edition by Willis, Hoffman, Maloney, and Raabe (includes: RIA On-line Checkpoint access for six months) Optional: West's Student Study Guide Additional Resources (suggested, if you need assistance IRS Publication 560 Small Business Retirement Plans and IRS Publication 590 Individual Retirement Accounts Recommended: (1) IRS Publications 17, 334, 534 (to order call tax-form) Outside Reference For Additional Help, if needed: (1) Research Institute of America (RIA), Federal Tax Handbook (2) National Underwriters (NU), Tax Facts (3) Pension Answer Book series Classroom Operation: (1) Chapter reading must be completed BEFORE day of class discussion (2) Chapter problem/assignments will be discussed at the end of the class evening (3) Instructor available before classes on the ground or POST QUESTION IN DISCUSSION THREAD RELATED TO CHAPTER'S SUBJECT for classes on line. Evaluation/Grading: Course grades will be based on participation and completion of assignments as follows: % Item Grading 35% Mid-term 35% Final 30% Group Problems & Participation *** *** VERY VERY IMPORTANT NOTE: IN NO WAY, however, will a passing grade be assigned IF THE AVERAGE grade of the midterm and final (combined) is NOT AT LEAST a C. The participation score can be detrimental to your grade in the class if you ignore your obligation to participate, however, otherwise, participation can be used to give you the higher of the two averaged scores, or, perhaps, slightly more, if appropriate in consideration of the quality and content of your participation. ******* NOTE: ALL COURSE GRADES ARE FINAL *******. WEEK ONE Chapter One not required

3 Introduction to Taxation and Understanding the Federal Tax Law Discussion Questions 5, 7, 20, 41, 48 Chapter Two not required Working With the Tax Law Discussion Questions 9, 11, 15, and 17. Chapter Three Tax Determination; Personal and Dependency Exemptions: An Overview Of Property Transactions Topic One Financial Planning Process A. Purpose, Benefits, and Components B. Steps C. Responsibilities Topic Two CFP Board Code of Ethics A. Code of Ethics B. Disciplinary Rules and Procedures Topic Three CFP Practice Standards A. Purpose and Applicability B. Content of Each Series C. Enforcement through Disciplinary Rules and Procedures Topic Fifty-Six Taxation of Investment Vehicles I. Other Topic Fifty-Seven Income Tax Law Fundamentals A. Source Of Authority B. Research Sources Topic Fifty-Eight Tax Compliance A. Filing Requirements B. Authority to Represent C. Audits D. Penalties Topic Fifty-Nine Income Tax Fundamentals and Calculations A. Filing Status E. Personal and Dependency Deductions F. Taxable Income

4 G. Tax Liability WEEK TWO Chapter Four Gross Income: Concepts and Inclusions Chapter Five Gross Income: Exclusions Topic Four Personal Financial Statements A. Balance Sheet B. Cash Flow Statement C. Pro Forma Statements Topic Five Budgeting B. Financing Strategies C. Savings Strategies Topic Six Emergency Fund Planning C. Liquidity Substitutes Topic Eleven Educational Funding C. Qualified State Tuition Plans E. Savings Bonds or CDs F. Government Grants and Loans G. Other Sources I. Tax Ramifications Topic Sixteen Characteristics and Consequences of Property Titling A. Common Law versus Community Property C. JTWROS G. UTMAs and UGMAs Topic Twenty-Seven Disability Income Insurance: Individual F. Taxation of Benefits Topic Twenty Monetary Settlement Planning B. Legal Settlements E. Insurance Proceeds Topic Twenty-Nine Life Insurance

5 H. Tax Issues and Strategies Topic Thirty Viatical Settlements B. Tax Implications Topic Thirty-Two Taxation of Life, Disability, and LTC Insurance A. Income B. Gift C. Estate D. GSTT E. Ownership Issues F. Beneficiary Issues G. Withdrawals Topic Thirty-Five Employee Benefits A. Group Life Insurance Income Tax Implications B. Group Disability Insurance Income Tax Implications C. Group Medical Insurance Tax Implications D. Cafeteria Plans and Flexible Spending Accounts Tax Implications E. Other Employee Benefits Tax Implications Topic Fifty-Six Taxation of Investment Vehicles E. U.S. Savings Bonds F. Annuities G. Unit Investment Trusts Topic Fifty-Nine Income Tax Fundamentals and Calculations B. Gross Income C. Adjusted Gross Income Topic Sixty-Eight Tax Management Techniques C. Accelerated Deductions D. Deferral Of Income Topic Seventy Tax Implications of Changing Circumstances A. Marriage B. Divorce WEEK THREE Chapter SIX Deductions and Losses: In General

6 Chapter TEN Deductions and Losses: Certain Itemized Deductions Topic Seven Credit and Debt Management C. Home equity loan and home equity line of credit D. Secured versus unsecured debt Topic Twelve Financial Planning for Special Circumstances A. Divorce B. Disabilities C. Terminal Illness E. Job Change and Job Loss, including Severance Packages Topic Twenty-Eight LTC Insurance: Individual and Joint H. Tax Implication and Qualification Topic Fifty-Nine Income Tax Fundamentals and Calculations D. Itemized Deductions K. Kiddie Tax L. Imputed Income Topic Seventy-One Charitable Contributions and Deductions A. Qualified Entities B. Deduction Limitations C. Carryover Periods D. Appreciated Property E. Partial Interest Gifts to Charity F. Non-deductible contributions G. Appraisals H. Substantiation Requirements Topic Ninety-Two Charitable Giving H. Income Tax Charitable Deduction Limitations WEEK FOUR Chapter SEVEN Deductions and Losses: Certain Business Expenses and Losses Chapter NINE Employee Expenses

7 Topic Sixty-Eight Tax Management Techniques F. Net Operating Losses WEEK FIVE Chapter TWELVE (Partial) Tax Credits (Pages 12-1 to 12-8, to plus table 12-1) Chapter FIFTEEN (Partial) Individual Alternative Minimum Tax (Pages 15-1 to 15-32) Chapter TWENTY FIVE (Partial) Taxation of International Transactions (Pages 25-1 to /20 tax havens, foreign tax credit to 25-42) Topic Eleven Educational Funding B. Tax Credits and deductions Topic Thirty Six Employee Stock Options B. Incentive Stock Options C. Non-qualified Stock Options D. Planning Strategies for both E. Elections Topic Fifty-Nine Income Tax Fundamentals and Calculations H. Tax Credits Topic Sixty-Seven Alternative Minimum Tax A. Individual Topic Sixty-Eight Tax Management Techniques A. Tax Credits B. Alternative Minimum Tax WEEK SIX

8 Chapter EIGHT Depreciation, Cost Recovery, Amortization, and Depletion. Chapter ELEVEN Passive Activities Topic Eight Buying versus Leasing A. Calculation C. Effect on Financial Statements Topic Fifty-Six Taxation of Investment Vehicles H. Limited Partnerships Topic Sixty-Four Cost-Recovery Concepts A. MACRS B. Repairs C. Section 179 D. Amortization Topic Sixty-Nine Passive Activity and At-Risk Rules A. Definitions B. Computations C. Treatment of Disallowed Losses D. Disposition of Passive Activities E. Real Estate Exceptions WEEK SEVEN Chapter THIRTEEN Property Transactions; Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges Chapter FOURTEEN Property Transactions; Capital Gains and Losses, Section 1231, and Recapture Provisions Topic Thirty-Seven Stock Plans A. Employee Stock Purchase Plans Tax Implications/Benefits

9 B. Phantom Stock and Other EE Stock Plans Tax Implication/Benefits Topic Forty-Three Measures of Investment Returns E. After-tax returns J After-tax yield Topic Forty-Eight Investment Strategies F. Swaps and Collars Topic Fifty-Four Tax Efficient Investing A. Mutual Funds B. Stocks C. Bonds Topic Fifty-Five Investment Strategies in Tax-Advantaged Accounts A. Capital Gain vs. Ordinary Income B. Tax Advantages C. Net-Unrealized Appreciation D. Appropriate Strategies for Taxable vs. Tax-Advantaged Accounts Topic Fifty-Six Taxation of Investment Vehicles A. Mutual Funds B. Stocks C. Bonds D. US Savings Bonds Topic Sixty-Three Basis A. Original Basis B. Adjusted Basis C. OID D. Carryover Basis E. Step-up Basis F. Community Property versus Common Law Topic Sixty-Five Tax Consequences of Like-Kind Exchanges A. Reporting Requirements B. Qualifying Transactions C. Multiple Properties D. Liabilities E. Boot F. Related Party Transactions Tax Consequences of Gain or Loss On Sale of Assets A. Holding Period B. Sale of Residence C. Capital Assets

10 D. Depreciation Recapture E. Related Parties F. Wash Sales G. Bargain Sales H. Section 1244 WEEK EIGHT Chapter SEVENTEEN Corporations: Introduction, Operating Rules, and Related Corporations Chapter SIXTEEN Accounting Periods and Methods Chapter FIFTEEN (Rest) Alternative Minimum Tax (Pages to 15-32) Topic Fifteen Characteristics and Consequences of types of entities A. Sole Proprietorship C. Limited Liability Company D. Corporation E. Association G. Selection of Business Form Topic Fifty-Nine Income Tax Fundamentals and Calculations I. Payment of Tax J. Estimated Payments and Withholding Requirements Topic Sixty Tax Accounting Methods A. Cash Method B. Accrual Method C. Hybrid Method D. Long-Term Contracts E. Installment Sales F. Accounting Periods G. Method Changes Topic Sixty-One Tax Characteristics of Entities A. Taxation at the Entity Level B. Flow-through of Income and Losses to Shareholders C. Special Taxes at Entity Level D. Use of Losses

11 Topic Sixty-Seven Alternative Minimum Tax A. Corporate AMT B. Small Business Exemption Topic Sixty-Eight Tax Management Techniques E. Estimated Taxes and Withholding Topic Seventy-One Charitable Contributions and Deductions I. Charitable Contributions by Business Entities WEEK NINE Chapter EIGHTEEN Corporations: Organization and Capital Structure Chapter NINETEEN Corporations: Distributions not in Complete Liquidation Chapter TWENTY (Partial) Corporations: Distributions in Complete Liquidation and (Pages 20-1 to 20-9, plus concept summary 20-1) Topic Fifteen Characteristics and Consequences of types of entities D. Corporations H. Acquisition and Disposition Topic Thirty-Eight Non-Qualified Deferred Compensation A. Basic Provisions and differences from qualified plans B. Types of Plans and Applications C. Tax Implications D. Funding Methods Topic Thirty-Nine Employer/Employee Insurance Arrangements A. Business Continuation Buy/Sell C. Executive/Owner Key Benefits E. Key Employee Insurance F. Transfer of Ownership and Tax Issues Topic Sixty-One Tax Characteristics of Entities E. Taxation at Dissolution

12 Topic Eighty-Three Estate Planning Documents F. Business Agreements Topic Ninety-Seven Intra-Family and other Business Transfer Techniques B. Techniques C. Federal Income, gift, estate, and GSTT implications WEEK TEN Chapter TWENTY ONE Partnerships Chapter TWENTY TWO S-Corps Topic Fifteen Characteristics and Consequences of Types of Entities B. Partnerships C. S-Corporations WEEK ELEVEN Chapter TWENTY SEVEN The Federal Gift and Estate Taxes (Partial) (Pages 27-1 to up to LO.5, tax planning) Chapter TWENTY EIGHT Income Taxation of Trusts and Estates Topic Fifteen Characteristics and Consequences of Types of Entities F. Trust Topic Sixteen Characteristics and Consequences of Property Titling D. Common Law versus Community Property E. Sole Ownership F. JTWROS G. Tenancy by the Entirety H. Tenancy in Common I. Trust Ownership

13 J. UTMAs and UGMAs Topic Sixty-Two Income Taxation of Estates and Trusts A. General Issues Topic Seventy Tax Implications of Changing Circumstances C. Death: the Final Return Topic Eighty-Four Gifting Strategies A. Suitability C. Appropriate Gifting Property D. Strategies for the Closely-Held Business Owner E. Gifts of a Present Interest F. Tax Implications Topic Eighty-Five Gift Taxation and Compliance A. Filing Requirements B. Calculation Topic Ninety Types, Features, and Taxation of Trusts D. Taxation of Trusts and Estates Topic Ninety-Three Use of Life Insurance in Estate Planning E. Income Taxation WEEK TWELVE IRS Publication 590 and 560 SUGGESTED Individual Retirement Accounts and Retirement Plans for Small Businesses Topic Ten Client Attitudes and Behavioral Characteristics D. Life cycle and age Topic Eleven Education Funding D. Education IRA Topic Twenty Monetary Settlement Planning C. Lump-Sum Retirement Distributions Topic Seventy-Five Types of Retirement Plans

14 A. Characteristics B. Types of Plans Topic Seventy-Six Qualified Plan Rules and Options B. Qualified Plan Coverage and Eligibility Requirements C. Qualified Plan Vesting Schedule D. Factors Affecting Qualified Plan Contributions or Benefits E. Top Heavy Plans F. Loans Topic Seventy-Seven Other Tax-Advantaged Retirement Plans A. Types B. Basis Provisions Topic Seventy-Eight Regulatory Considerations D. Prohibited Transactions Topic Seventy-Nine Plan Selection for Business A. Owners Personal Objectives B. Business Objectives Topic Eighty Investment Considerations In Retirement Plans D. Prohibited Transaction E. Unrelated Business Taxable Income G. Life Insurance Topic Eighty-One Distribution Rules, Alternatives, and taxation A. Premature Distributions B. Election of Distribution Options C. Required Minimum Distributions D. Beneficiary Considerations E. QDRO F. Taxation of Distributions