INCOME TAX INCOME TAX FINANCIAL PLANNINGFINANCIAL PLANNING

INCOME TAX INCOME TAX FINANCIAL PLANNINGFINANCIAL PLANNING

Instructor:

Dennis Phillips

CLASS SCHEDULECLASS SCHEDULECLASS SCHEDULECLASS SCHEDULE

Class is from 6:00 to 10:00 p.m.. I will shorten up breaks so that we can usually leave a little early.

GRADING FOR COURSEGRADING FOR COURSEGRADING FOR COURSEGRADING FOR COURSE

20% for attendance (Can be made up with doing odd number problems in Group 1 and even number problems in Group 2)

30% for turning in problems20% for the mid-term30% for final exam.

ATTENDANCE SHEETATTENDANCE SHEET

Each night I will provide you with an attendance sheet which must be signed.

If you cannot make the class, to make up the absence, you must complete all the problems in group 1 and 2. (Both odd and even problems in both groups)

HISTORY OF INCOME TAXHISTORY OF INCOME TAXHISTORY OF INCOME TAXHISTORY OF INCOME TAX

Modern Federal income tax began with the enactment of the Revenue Act of 1913. Between 1913 and 1939, 15 revenue acts were passed by Congress. Whenever it was necessary to change the law, a new law was substituted for the old, with much of the new law taken from the old.

HISTORY OF INCOME TAXHISTORY OF INCOME TAXHISTORY OF INCOME TAXHISTORY OF INCOME TAX

Congress adopted the Internal Revenue Code of 1939, to which provisions could be added or deleted by Congressional Amendment.

Between 1939 and 1953 the IRC of 1939 was amended 21 times. To establish a more logical arrangement and eliminate some inequities, the IRC of 1954 was adopted. This code was amended so many times that the 1986 Code was adopted after implementation of the TRA of 1986.

TAX LAW CHANGESTAX LAW CHANGES

On December 17, 2010, President Obamasigned into law a two-year extension of thereduced individual income tax rates put inplace by the Economic Growth and Tax ReliefReconciliation Act of 2001 (EGTRRA)and subsequent legislation. Under the 2010Tax Relief Act, the individual rates remainat 10, 15, 25, 28, 33, and 35 percent for alltaxpayers through the end of 2012.

TAX LAW CHANGESTAX LAW CHANGES

American Recovery & Reinvestment Act of 2009 Worker, Retiree, and Employer Recovery Act of

2008 Emergency Economic Stabilization Act of 2008 Housing Assistance Tax Act of 2008 Economic Stimulus Act of 2008 Small Business & job Opportunity Act of 2007 The Pension Protection Act of 2006

American Recovery & American Recovery & Reinvestment Act of 2009Reinvestment Act of 2009

a one-time stimulus payment of $250 to retirees, disabled individuals, social security recipients, and disabled veterans

a temporary increase of the earned incomecredit for working families with three or

more children;

American Recovery & American Recovery & Reinvestment Act of 2009Reinvestment Act of 2009

a deduction for state and local taxes paid on the purchase of a new automobile during 2009

a suspension of federal income tax on the

first $2,400 of unemployment benefits per recipient for 2009.

WORKER, RETIREE, AND EMPLOYERRECOVERY ACT OF 2008

Suspension of RMD for 2009Increased S Corp penaltiesIncreased Partnership Penalties

EMERGENCY ECONOMICSTABILIZATION ACT OF 2008

AMT PATCHExtended Exclusion for HomeownersHigher Education Tuition DeductionTax-Free Distributions from IRAs for

Charitable Purposes

STIMULUS ACT OF 2008STIMULUS ACT OF 2008

Provides Tax Benefits to Businesses Provides Rebates to individuals

The Pension Protection Act of The Pension Protection Act of 20062006

Makes permanent the higher contribution limit for individual retirement accounts (IRAs)

Allows direct rollovers from retirement plans to Roth IRAs

LEGISLATIVE PROCESS LEGISLATIVE PROCESS LEGISLATIVE PROCESS LEGISLATIVE PROCESS

All Federal income tax legislation originates in the House of Representatives. Hearing are held by the Committee on Ways and Means. Many viewpoints are considered including those of the President, the Treasury, and individual taxpayers.

LEGISLATIVE PROCESSLEGISLATIVE PROCESSLEGISLATIVE PROCESSLEGISLATIVE PROCESS When a bill is introduced in the house, the

committee report on that bill is published.

When a bill is considered by the Senate, the Senate Finance Committee holds hearings, and also writes a report explaining any changes made to the House bill.

If the House and Senate passed bills differ, a Conference Committee of both Representatives and Senators is formed to reconcile the difference.

LEGISLATIVE PROCESSLEGISLATIVE PROCESSLEGISLATIVE PROCESSLEGISLATIVE PROCESS

This committee issues a Conference report.

The reconciled bill is then resubmitted to both the House and Senate for passage.

SOURCES OF SOURCES OF INFORMATIONINFORMATIONSOURCES OF SOURCES OF INFORMATIONINFORMATION

INTERNAL REVENUE CODETREASURY REGULATIONS REVENUE RULINGS AND REVENUE

PROCEDURESPRIVATE LETTER RULINGSJUDICIAL SOURCES OF THE TAX

LAW

INTERNAL REVENUE CODEINTERNAL REVENUE CODE

The code is compiled and published in the United States Code (U.S.C.) under Title 26.

TREASURY REGULATIONSTREASURY REGULATIONS

Section 7805 of the IRC grants authority for the commissioner of the IRS to prescribe rules and regulations for the enforcement of the IRC.

The regulations interpret the Code. They are arranged in the same sequence. Regulations are, however, prefixed by a number which designates the type of tax or administrative, procedural or definitional matter to which they relate.

REVENUE RULINGS AND REVENUE RULINGS AND REVENUE PROCEDURESREVENUE PROCEDURES

Revenue Rulings provide interpretation of the tax law. They do not, however, have the same legal weight as do the regulations and usually deal with more restricted problems.

Revenue Procedures deal with internal management practices and procedures of the IRS.

PRIVATE LETTER RULINGSPRIVATE LETTER RULINGS

Letter rulings are issued upon a taxpayer's request and describe how the IRS will treat a proposed transaction for tax purposes.

The IRS limits the issuance of individual letter rulings to restricted, preannounced areas of taxation.

The IRS will not rule in areas when they involve fact oriented situations.

JUDICIAL SOURCES OF JUDICIAL SOURCES OF THE TAX LAWTHE TAX LAW

Cases involving Federal tax litigation may be brought in either the U.S. Tax Court, Federal District Court or Claims Court.

However, in order to petition the Federal District Court or the Claims Court, the taxpayer must first pay the tax and file a claim for refund. Such refund would have to be denied by the IRS and a statutory notice of claim disallowance issued.

TAX PLANNINGTAX PLANNING

Complexity of the tax code

TAX PLANNINGTAX PLANNINGTAX PLANNINGTAX PLANNING

Taxes represent an additional cost of doing business or of accumulating wealth.

Tax Planning is the process of arranging one’s financial affairs to optimize tax liabilities. There is nothing illegal or immoral in the avoidance of taxation.

TAX PLANNINGTAX PLANNINGTAX PLANNINGTAX PLANNING

Tax evasion is illegalEver since the first enactment of the first

income tax laws, taxpayers have been trying to find ways to avoid taxes. Likewise, Congress, the IRS and the courts have enacted rules and doctrines to prevent, or least restrict various avoidance schemes.

TAX PLANNINGTAX PLANNINGTAX PLANNINGTAX PLANNING

A basic knowledge of the tax system is necessary for any tax planner if disasters are to be avoided

TAX PLANNINGTAX PLANNING

Any investor must consider income tax as a part of the cost of any investment.

A financial planner must attempt to minimize the tax element of the investment cost.

TAX PLANNINGTAX PLANNING

Window of opportunity generally ends on December 31 for most individual taxpayers.

Tax planning primarily concerns the timing and method of income reporting and your deductions and credits are claimed.