chapter 13: individual income tax and tax planning chapter 13 individual income tax and tax planning

Chapter 13: Individual Income Tax and Tax Planning Chapter 13 Individual Income Tax and Tax Planning

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Chapter 13: Individual IncomeTax and Tax Planning

Chapter 13

Individual Income Tax and Tax Planning

Chapter 13: Individual Income Tax and Tax Planning 2005 Kaplan Financial

Federal Income Tax Law Objectives

Revenue-raising objectives Economic objectives Social objectives

Page 3: Chapter 13: Individual Income Tax and Tax Planning Chapter 13 Individual Income Tax and Tax Planning

Chapter 13: Individual Income Tax and Tax Planning 2005 Kaplan Financial

Individual Income Tax Rates

Ordinary rates Capital gain rates

Capital asset/Dividends Sale or exchange Long-term holding period

Alternative Minimum Tax (AMT) rates

Page 4: Chapter 13: Individual Income Tax and Tax Planning Chapter 13 Individual Income Tax and Tax Planning

Chapter 13: Individual Income Tax and Tax Planning 2005 Kaplan Financial

Determining Income Tax Liability – Taxable Income

Total IncomeLess: exclusions from gross income

Gross IncomeLess: deductions for Adjusted Gross Income

Adjusted Gross Income (AGI)Less the larger of:

Standard Deduction or Itemized DeductionsLess: personal and dependency exemptions

Taxable Income

Page 5: Chapter 13: Individual Income Tax and Tax Planning Chapter 13 Individual Income Tax and Tax Planning

Chapter 13: Individual Income Tax and Tax Planning 2005 Kaplan Financial

Deductions for AGI

Business expenses Net capital losses ($3,000) Self-employed expenses Alimony paid IRA contributions Moving expenses Education expenses

Page 6: Chapter 13: Individual Income Tax and Tax Planning Chapter 13 Individual Income Tax and Tax Planning

Chapter 13: Individual Income Tax and Tax Planning 2005 Kaplan Financial

Itemized Deductions

Medical expenses (> 7.5% AGI) State & local income taxes Property taxes Mortgage interest Investment Expenses (< Investment

Income) Charitable contributions Casualty/Theft losses (> 10% AGI + $100) Miscellaneous (> 2% AGI)

Page 7: Chapter 13: Individual Income Tax and Tax Planning Chapter 13 Individual Income Tax and Tax Planning

Chapter 13: Individual Income Tax and Tax Planning 2005 Kaplan Financial

IRS Guidance

Letter rulings Determination letters Revenue rulings Private letter rulings Revenue procedures Technical advice memoranda

Page 8: Chapter 13: Individual Income Tax and Tax Planning Chapter 13 Individual Income Tax and Tax Planning

Chapter 13: Individual Income Tax and Tax Planning 2005 Kaplan Financial

The IRS Audit Process

Penalties Failure-to-file penalties Failure-to-pay-tax penalties Accuracy-related penalties Fraud penalties

Page 9: Chapter 13: Individual Income Tax and Tax Planning Chapter 13 Individual Income Tax and Tax Planning

Chapter 13: Individual Income Tax and Tax Planning 2005 Kaplan Financial

Payroll Taxes

FICA taxes for employers and employees 6.2% OASDI on $90,000 (2005) 1.45% Medicare

Self-employment tax Double the employee’s rate

FUTA tax calculation

Page 10: Chapter 13: Individual Income Tax and Tax Planning Chapter 13 Individual Income Tax and Tax Planning

Chapter 13: Individual Income Tax and Tax Planning 2005 Kaplan Financial

Tax-Advantaged Investments

Investment in tax-exempt securities

Tax shelters Employee benefits Acceleration of deductions Deferral of tax gains Exemption opportunities

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