1. BUILDING A FINANCIAL FOUNDATION HOW TAXES EFFECT YOUR WEALTH TingTing Lu 11/21/2015

2. Financial Concepts 101

12. The Power of Compound Interest & TAX

13. TAXES

14. Taxation on Individuals in U.S Federal Income Tax Social Security(6.2% up to $118,500, 12.4% after) & Medicare Tax (1.45%) Capital Gains & Dividend Income Tax Estate Tax Excise Tax State & Local Government Income Tax Property tax & Sales, use tax

15. Historical Tax Bracket 201319851960

16. 2013 &2014 Income Tax

17. Standard or Itemized Deduction? – Use the larger one 17 Single$5,950 Married/jointly$11,900 Married/separately$5,950 Head of household$8,700 Standard Deduction:  Itemized Deduction:  Medical expense (7.5% AGI)  State & Local income tax  Personal property tax  Home mortgage interest  Charity contribution  Casualty or theft loss (10% AGI)  Job expenses and more  Etc.

18. Deduction from Gross Income  Educator expenses ($250/person)  Health Saving Account(HDHP $6450/ $3250)  Moving expense  Self-employed health insurance deduction  Self employed, Sep, Simple, Qualified Plans, IRA  Student loan Interest ($2500@ $150,000 AGI)  Tuition and fees ($4000 deduction, but not allowed if MAGI exceed $160K)

19. Individual Income Tax Form 1040 Gross Income - Qualified Deductions ( Qualified plans 401k/IRA/SEP/SIMPLE,etc. -+Business Income or Loss =Adjusted Gross Income(AGI) - Itemized or Standard Deduction - Personal Exemptions =Taxable Income x Tax Rates (effective rate) =Tentative Tax - Tax Credits & Federal Tax Withholding =Federal Tax Liability (or Refund) $110,000($50,000+$60,000) +$300(Banking interest) -$20,000(401k$10k each) -$16,000(Business Loss) =$74,300(AGI) -$17,900(Itemized Deduction) -$11,400(3x$3,800) =$45,000(Taxable Income) $1,740=10%x$17,400 $4,140=15%x$27,600 =$5,880(Tax) -$1,000(Child Tax Credits) -$12,000(Federal Tax Withholding) =-$7,120(Federal Tax Refund)

20. Tax Rate & Government Spending

21. Gross Public Debt: Total Pct. GDP & Avg. Tax Rate INTRODUCTION: HISTORICAL TAX RATES Sources: Tax Foundation, Tax Data, U.S. Federal Individual Income Tax Rates History, 1913-2011; Treasury Direct, Historical Debt Outstanding – Annual (1929-2010); U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts Table, Table 1.1.5. Gross Domestic Product (1929-2010); The White House Office of Management and Budget, Historical Tables for 2011-2016. Data includes actual historical data from 1929-2011 and projected data from 2012-2016. For an audience with a basic understanding of the financial industry. Not intended for use with the general public.

22. Gross Public Debt: Total Pct. GDP & Avg. Tax Rate INTRODUCTION: HISTORICAL TAX RATES Sources: Tax Foundation, Tax Data, U.S. Federal Individual Income Tax Rates History, 1913-2011; Treasury Direct, Historical Debt Outstanding – Annual (1929-2010); U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts Table, Table 1.1.5. Gross Domestic Product (1929-2010); The White House Office of Management and Budget, Historical Tables for 2011-2016. Data includes actual historical data from 1929-2011 and projected data from 2012-2016.

23. Where to Save Money Tax Now Checking Saving CD Stock Mutual Fund Tax Later 401(k)/403(b) IRA/SEP-IRA Annuity Pension Social Security Investment Property Tax Free ROTH-IRA ROTH 401K 529 7702

24. Tax Advantage Plans Pre – Tax Dollar Contributions Tax- Deferred Growth Tax- Advantaged Distributions Limitation 401k, 403b, 457 IRA, SEP IRA, SIMPLE IRA Yes No 59 ½ 70 ½ Roth IRA Roth 401k NoYes Income limit 59 ½ Non-Q AnnuityNoYesLIFO59 ½ 529 Plan ESA NoYes Education 7702 VUL / IUL NoYes Healthy

25. Employer Sponsored Retirement Plans  401(k): employer-sponsored profit-sharing plans  403(b): public education organizations, some non-profit employers, Tax Sheltered Annuity plans (TSA)  457: government and certain non-governmental employers.  The key difference is unlike a 401(k) plan, there is no 10% penalty for withdrawal before the age of 59 1/2.  SEP IRA: Simplified Employee Pension Individual Retirement Account  SIMPLE IRA: Savings Incentive Match Plan for Employees IRA

26. Tradition retirement plans (401k/403b,IRA etc) Tax deductible, tax deferred growth; 59 1/2 RMD (70 1/2 ) ; Tax at distribution (principle and return); Contribution limit: o 401k/403b: $18,000 ($23,000 if age>50) o SEP: Min(25% Compensation, $52,000) o IRA: $5500 ($6500 if age>50)

27. ROTH (Roth 401k, Roth IRA, Roth Conversion) Pay tax now, Tax free forever (growth and distribution) Phase-out for Roth IRA: $183,000--$193,000 Contribution limit: (Combined with Traditional) o Roth 401k: $18,000 ($23,000 if age>50) o Roth IRA: $5500 ($6500 if age>50)

28. IUL vs. S&P 500 Index

29. Investment Tax S&P 500 Index Fund, $100K, 1976-2013 Tax Impact: 35% - 50% Tax Impact: 35% - 50% * 25% income tax rate and 15% capital gain tax rate apply. Assume 5% state tax rate.

30. The Picture Return? Risk? Tax Now? Tax Free? Tax Later? Save? Fin. Aid? Safety? Growth? Longevity? Life? Asset? LTC? Probation? Tax?

31. Family Financial Needs Emergency Fund 3 to 6 mo. expense Mortgage Down payment – how much Fixed or Adjusted? 15 or 30 years loan? Education fund Financial Aid EFC 529? Prepaid? Retirement plan Growth/Safety/Longevity Health Insurance Disability Insurance Life Insurance How much? What Type? Estate Planning Living Trust Irrevocable Trust Long Term Care

32. 529 Parents’ AssetIncludable Check/Saving/CD Stock Mutual Fund 529 Investment Property Resident Home* Excludable Retirement Asset Annuity 7702

33. Wall Street Journal Talks About Life insurance

34. And Don’t Forget…  Mortgage  Business CAN SAVE YOUR TAX!

35. There are Two Tax Systems in the U.S. One for employees and the other for business owners or self-employed Deductions as an employee: Deductions as a business owner:  Mortgage Interest  Property Taxes  Medical Expenses ONLY the part that exceeds 7.5% of your income  Gifts to Charity  IRA Contributions See IRS code Section 162(a) “There shall be allowed as a deduction, all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.”

36.  Mortgage interest or rent  Depreciation of your vehicle  Loss when you sell a vehicle  State and local income taxes  100% of all medical expenses. Insurance premiums, deductibles, prescriptions, braces, contacts,etc.  Life Insurance  Computers, printers, scanners, VCR.  Any purchases you make for your work, or related to your work.  Cell phones, Internet access, DSL  Children’s allowances – paid as wages can be used for: clothes, presents, college, weddings, food, etc.  SEP retirement contributions  Home insurance, repairs, utilities, furniture.  Travel / vacation expenses  Boats, motor homes or airplanes.  Meals out, theater tickets ( for business use), golf, entertainment, etc.  Parties at home or away.  AND MUCH, MUCH, MORE !!! Common Deductions for Business Owners

37.  32% of GDP comes from self-employed.  96% of inventions started in some ones garage or basement. In America, we are given the incentive to become entrepreneurs and grow the country’s productivity. By design, even the tax code helps us get started in business, making this “The Land of Opportunity.” Why Would the IRS Give You These Deductions?

38. ... Many Happy Income Tax Returns  The majority of Americans will get a tax refund at more than $2,000 a year, and the key to using it wisely is developing a spending plan for the money before it comes in the mailbox.  Creating an Emergency Fund  Eliminating Credit Card Debt  Buy Life Insurance  Saving for Education  Saving for Retirement  Just Say No to Tax Refunds 38