Innovative Tax Planning for Individuals and Sole Proprietors

• Chapter 0 - Overview
• Introduction
• Organization
• Conclusion
• Chapter 1 - Maximizing Tax Benefits for Sales of Capital Gain Assets and Real Property
• Learning Objectives
• Introduction
• Capital Gains Tax Rates in a Nutshell
  • Reduced Capital Gains Rates for Sales through 2010
  • Some Gains Do Not Qualify for Reduced Rates
  • Alternative Minimum Tax (AMT) Treatment of Capital Gains
  • Qualified Dividends Taxed at Capital Gains Rates, Too
  • Not All Dividends Are Eligible for Reduced Rates
  • Reduced Ordinary Income Rates, Too – But Long-Term Capital Gains and Qualified Dividends
  • Are Taxed Less
  • Many Individuals Occupy 10% and 15% Brackets and Pay Only 0% on Their Investment Profits
• Tax-Smart Investing Strategies
  • Tax-Smart Strategies for Capital-Gain Assets
  • Tax-Smart Strategies for Fixed-Income Investments
  • Borrowing to Buy Dividend-Paying Stocks Is Usually Inadvisable
  • Variable Annuities Are Damaged Goods
• Installment Sales of Capital and Section 1231 Assets
  • Installment Sales of Depreciable Real Estate
• Planning for Year-End Dispositions of Securities
  • Planning for Year-End Mutual Fund Transactions
  • Donate Appreciated Stock, Sell Loss Stock
  • Other Year-End Considerations
• More on Tax Planning for Mutual Funds
  • What Sale?
  • Calculating Mutual Fund Share Basis
  • FIFO Method
  • Average Basis
  • Foreign Taxes on International Funds
• Netting Rules and Dispositions of Section 1231 Property
• Converting Capital Gains and Qualified Dividends into Ordinary Income to Maximize Investment Interest Writeoffs
• Special Breaks for Sales of Qualified Small Business Stock
  • Effective Rate of Tax on QSBC Income
  • AMT Preference for Excluded Gain
  • Limitations on Gain Exclusions
  • Gain Rollover Rule
• Planning for Capital Gain Treatment for Subdivided Lot Sales
  • Restrictions on Section 1237 Relief
  • Definition of"Tract of Real Property"
  • Definition of "Substantial Improvement"
  • Election to Disregard Substantial Improvements
  • The Six Lot Rule
• Using a"Developer Entity" to Convert Ordinary Income into Capital Gains
• Escaping Gains Altogether with a Like-Kind Exchange
  • Like-Kind Exchange Basics
  • Realized Versus Recognized and Receipt of Boot
  • Basis and Holding Period for Like-Kind Property Received
  • Effect of Liabilities
  • Deferred Like-Kind Exchanges
  • Tax Rules for Deferred Exchanges
  • Avoiding Constructive Receipt Problems with Escrow Arrangements
  • Four-Party Exchanges with Qualified Intermediaries
  • "Reverse Starker Exchanges" Are Now Clearly Allowed
• Summary
• Questions
• Chapter 2 - Planning for Employer Stock and Stock Options
• Learning Objective
• Introduction
• Employer Stock Options
  • Buying and Selling ISO Shares
  • AMT Rules for ISO Shares
  • Disqualifying Dispositions of ISO Stock
  • New Refundable AMT Credit Provision
  • Nonqualified Stock Options (NQSOs)
  • Hold That Option, Version 1
  • Hold That Option, Version 2
• Federal Payroll Tax Implications of Employer Options
  • Nonqualified Options
  • Incentive Stock Options
• Year-End Sale of ISO Shares Can Avoid Unfair AMT Hit
  • But Watch Out for This!
• Employer Stock from Qualified Retirement Plan Distributions
  • Withdraw Shares and Hold in Taxable Account
  • Rollover into IRA
• Summary
• Questions
• Chapter 3 - How Clients Can Manage Their Investment Accounts to Save Taxes
• Learning Objective
• Introduction
• Placing the Right Assets in the Right Accounts
  • Outcome for Option 1 (Fixed Income Assets in Roth IRA)
  • Outcome for Option 2 (Fixed Income Assets in Tax-Deferred Account)
  • Outcome for Option 3 (Fixed Income Assets in Taxable Account)
  • Conclusions
  • One More Advantage for Roth IRAs
• Contributing to Tax-Deferred Retirement Accounts Is Still the Tax-Smart Move
  • Argument
  • Outcome for Strategy 1 (Make Retirement Account Contribution)
  • Outcome for Strategy 2 (Skip Retirement Account Contributions and Invest in Taxable Account).. 3-8
  • Conclusions
• A Few Words About the"Tax Efficiency" of Mutual Funds
  • The Problem with Those Darned Funds
  • Enter "Tax-Efficient" Funds
  • So What Should Investors Do?
  • Additional Mutual Fund Tax Considerations
• Summary
• Questions
• Chapter 4 - All About IRAs
• Learning Objectives
• Introduction
• Roth IRA Basics
  • Larger Contribution Limits
  • Should Your Client Convert?
  • Conversion Details
  • How to Handle Roth IRA Withdrawals
• Planning around the IRA Required Minimum Distribution Rules
  • Required Minimum Distribution Rules for Original Account Owners
  • When Spouse's Account Is Inherited: Calculating Surviving Spouse's Required Minimum
    Distributions
• How to Use a Roth IRA for Estate Planning
• New Non-Spousal IRA Rollover Privilege
  • General Rollover Mechanics
  • Required Minimum Withdrawal Rules Apply to Receiving IRA
  • Special Considerations When Plan Participant Dies Before RBD
  • Rollover Mechanics When Plan Participant Dies Before RBD
  • Non-Spousal Rollover Conclusions
• Qualified Charitable Distributions (QCDs)
  • What Constitutes a QCD?
  • Sunset and Annual Limitation Rules
  • IRA Beneficiaries Can Do QCDs Too
  • QCDs Offer Income and Estate Tax Advantages
  • Who Can Benefit?
  • Do QCDs from Roth IRAs Make Sense?
  • “Bad Old Rules” Will Return in 2008 Unless Congress Acts
• Summary
• Questions
• Appendix – Converting the IRA or Standing Pat
• Chapter 5 - Maximizing Tax Benefits for Home Sales
• Learning Objectives
• Introduction
• Qualification Rules for Gain Exclusion Privilege
  • Ownership and Use Tests
  • What Is a Principal Residence?
  • Gain Exclusion Rules for Married Couples
  • Special Exception for Unmarried Surviving Spouses May Permit Larger $500,000 Gain
  • Exclusion
  • Anti-Recycling Rule
  • Prorated (Reduced) Gain Exclusion Loophole for"Premature" Sales
• Claiming Exclusion for Home Used Partly for Business or Rental
  • Premature Sale of Property Used for Business or Rental
• Excluding Gain from Sale of Land Next to Residence
• Excluding Gains in Marriage and Divorce Situations
  • Sale after Marriage
  • Sale before Divorce
  • Sale in Year of Divorce or Later
  • When "Nonresident Ex" Continues to Own Home Long after Divorce
• "Electing Out" of Gain Exclusion Privilege
• Understanding the Tax Implications of Personal Residence Short Sales and Foreclosures and the
• New Exclusion for Cancellation of Debt Income from Principal Residence Mortgages
  • Tax Rules for Cancellation of Debt Income
  • What If the Lender Forecloses?
  • New Exception for Principal Residence Mortgage Debt Discharges Will Save the Day for Many Clients
• Summary
• Questions
• Chapter 6 - Planning Opportunities with Vacation Homes and Timeshares
• Learning Objective
• Introduction
• "Regular" Vacation Homes
  • Category 1: Rented More than 14 Days – and Personal Use Exceeds Greater of 14 Days or
    10% of Rental Days
  • Category 2: Rented More than 14 Days – and Personal Use Does not Exceed Greater of 14
    Days or 10% of Rental Days
  • Category 3: Rented Less than 15 Days – and Personal Use Exceeds 14 Days
• Tax Planning for Category 2 Properties
• Timeshares and Co-Ownership of Vacation Homes
  • No Rental Days
  • Some Rental Days
  • Tax-Free Rent Rule
• Playing the Gain Exclusion Game with Multiple Residences
• Summary
• Questions
• Chapter 7 - Tax Planning for Marital Splits
• Learning Objective
• Introduction
• Separate Versus Joint Returns for Pre-divorce Years
  • Marriage Penalty Relief
  • Filing Separately to Avoid Liability for Ex-Spouse's Tax"Mistakes"
  • Filing Separately as Head of Household
  • Other Ways to Avoid Tax Liabilities Caused by Spouses
• Timing of the Divorce – This Year or Next?
  • Allocations of Taxable Income, Deductions, Tax Payments, Etc.
  • Head of Household Status in Year of Divorce
  • Divorcing before Year-End to Avoid Marriage Penalty
  • Postponing Divorce to Collect"Marriage Dividend"
• Avoiding Pre-Divorce Tax Fiascos with IRA and Qualified Retirement Plan Assets
• Planning to Achieve Tax-Effective Splits of IRA and Qualified Retirement Plan Assets
  • Splitting up IRA Assets
  • Splitting up Qualified Retirement Plan Account Assets
• Planning to Achieve Equitable After-Tax Property Divisions
  • Taking Advantage of the Tax-Free Transfer Rule
  • Assignments of Income Are Not Property Transfers
• Planning for Children's Dependent Exemption Deductions
• Planning to Qualify Payments as Deductible Alimony
  • Requirements for Payments to Constitute Alimony
  • Alimony Received Is Earned Income for IRA Contribution Purposes
  • Avoiding Characterization of Payments as Child Support
  • Avoiding Alimony Recapture
• Summary
• Questions
• Practice Aids
  • Practice Aid 7-1: Divorce Tax Planning Checklist
  • Practice Aid 7-2: Client Letter Regarding Separate Returns
  • Practice Aid 7-3: Client Letter Regarding Timing of Divorce
  • Practice Aid 7-4: Letter to Attorney Contacts Regarding Dividing IRA and Qualified Retirement
  • Plan Assets
  • Practice Aid 7-5: Checklist to Make Sure Payments Qualify as Deductible Alimony
• Chapter 8 - Tips for Self-Employed Clients
• Learning Objectives
• Introduction
• Choice of Business Entity
  • Sole Proprietorships
  • Single-Member Limited Liability Companies (LLCs)
  • S Corporations
  • Regular Corporations (C Corporations)
  • Qualified Small Business Corporations (QSBCs)
  • Multi-Member LLCs
  • Limited Liability Partnerships (LLPs)
  • General Partnerships
  • Limited Partnerships
• "Heavy" Sport Utilities, Pickups, and Vans Can Be Tax-Saving Machines
  • Reduced Section 179 Deduction for Heavy SUVs
  • Despite $25,000 Limitation, Depreciation Rules for Heavy SUVs Are Still Very Favorable
  • Bigger Section 179 Deduction for Tax Years Beginning in 2008
  • First-Year Bonus Depreciation Is Back (Temporarily)
  • Do Not Forget Section 179 Taxable Income Limitation
  • Do Not Forget Section 179 Deduction Phase-out Rule
  • Mind Stricter Rules for Corporate-Owned Vehicles
  • Other Caveats
• Planning to Reduce Self-Employment and FICA Taxes
  • Employing Owner’s Children in the Business
  • Beating the System by Incorporating
• Games You Can Play with Health Benefits
  • A Potential Solution for Sole Proprietors and Single-Member LLCs
  • Partnerships and Multi-Member LLCs
  • S Corporations
• Health Savings Accounts (HSAs)
  • HSA Basics
  • Clients Can Rake in Major Tax Savings over the Years
  • Those 55 and Older Can Make Larger Contributions
  • Eligibility Rules
  • FSA/HRA Rollovers
  • IRA Rollovers
  • FSA Grace Period Does Not Make Employee Ineligible for HSA Contributions
  • Employer-Funded HSAs
  • How to Set Up an HSA
  • Conclusion on HSAs
• Combine HSA and Section 105 Medical Reimbursement Plan for Extra-Healthy Tax Results
  • Section 105 Plan Can Pay First-Dollar Reimbursements for Certain Health Expenditures
  • without Jeopardizing Employee-Spouse’s HSA Contribution Privilege
  • Putting the Tax-Saving Pieces Together
  • Conclusions
• What to Do When Spouses Are Active in the Self-Employment Activity
  • More on the Federal Tax Status of Unincorporated Businesses
  • Self-Employment Tax Planning Opportunities in Community Property States
• Summary
• Questions
• Chapter 9 - Tax-Wise College Financing for Middle-Class Clients
• Learning Objective
• Introduction
• Education Tax Credits
  • The Hope Credit
  • The Lifetime Learning Credit
  • Rules Applying to Both Credits
  • Beating the System
• Deduction for Student Loan Interest
• Coverdell Education Savings Accounts
• Deduction for College Tuition and Related Fees
• Tax-Free Employer Reimbursements for Higher Education Costs
• Penalty-Free IRA Withdrawals
• Using Tax-Free Interest from U.S. Savings Bonds
  • Qualifying Savings Bonds
  • Qualifying Expenses
  • Computing the Amount of Excluded Interest
  • Those Nasty Phaseout Rules for Higher-Income Taxpayers
  • Conclusion on the Savings Bond Tax Break
• Electing the Accrual Method for U.S. Savings Bonds
  • How to Make the Election
• Summary
• Questions
• Chapter 10 - Tax-Savings College Financing Maneuvers for High-Income Clients
• Learning Objective
• Introduction
• Splitting Investment Income with the Kids
  • The Dreaded Kiddie Tax Rules
  • Saving for College Using Parent’s Taxable Account
  • Saving for College Using Child’s Roth IRA
• Financing College with Deductible Payments from the Parent's Business
  • How a Closely Held Business Can Deduct College Expenses Paid for the Owner's Adult Child
  • Meeting the Qualification Rules
  • Dodging the 5% Ownership Bullet
• State-Sponsored Qualified Tuition Programs (Section 529 Plans)
  • How College Savings Plans Work
  • The Tax Benefits
  • Investment Restrictions and Withdrawal Penalties
  • Which State Plan Is Best?
• "Last-Minute" Suggestions for Procrastinators
  • Home Equity Loans
  • Gift Appreciated Assets; Sell Loss Assets
  • Tap into IRA Funds
  • Take Advantage of Direct Gifts
• Summary
• Chapter 11 - Ethics Focus: Taxation
• Ethics Overview
• Recent Developments
• Spotlight on Independence in Tax Services
• Key Ethical Dilemmas and Judgment Calls
• Addressing Ethical Dilemmas
• Available Resources
• Chapter 12 - Latest Developments

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