1. ©2015, College for Financial Planning, all rights reserved. Session 2 Itemized Deductions and Personal Exemptions CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Income Tax Planning

2. Session Details Module1 Chapter(s)1 and 2 LOs1-6 Analyze a situation to calculate taxable income. 2-2

3. Income Tax Terms Amount by which nonitemizers reduce AGI before subtracting personal exemptions to arrive at taxable income Standard deduction Typically personal expenses allowed as a deduction from AGI; amount by which itemizers reduce AGI before subtracting personal exemptions to arrive at taxable income Itemized deductions 2-3

4. Income Tax Terms A deduction amount for the taxpayer, spouse, and dependents; deducted from AGI, in arriving at taxable income Personal and dependency exemptions Amount on which tax the income tax is computed Taxable income 2-4

5. Steps in the Calculation Process Determine total (gross) income for tax purposes. Subtract adjustments to income. Equals AGI Determine allowable itemized deductions. Subtract allowable itemized deductions, or standard deduction, from adjusted gross income. 2-5

6. Steps in the Calculation Process Determine personal exemption amount that can be claimed. Calculate taxable income. Calculate tax using appropriate tax rate schedule or tax table. Subtract tax credits and add additional taxes to determine tax liability. 2-6

7. Tax Computation 2-7

8. Itemized Deductions Medical expenses (after 7.5% or 10% floor) State & local income taxes (or sales tax through 2014) Home mortgage interest (including MIP through 2014) Property taxes Investment interest expense: Module 6 Charitable contributions: Module 7 Casualty & theft losses: Module 4 Miscellaneous deductions Tier II miscellaneous itemized deductions Phaseout based on AGI 2-8

9. Qualified Mortgage Interest Acquisition indebtedness Home equity indebtedness Treatment of points o on acquisition o on refinance MIP (through 2014) 2-9

10. Miscellaneous Itemized Deductions Miscellaneous Itemized Deductions (not subject to 2% of AGI floor) Impairment-related work expenses of a handicapped individual Unrecovered basis in commercial annuity Gambling losses (to extent of gambling winnings) 2-10

11. Tier II Itemized Deductions Tier II Miscellaneous Itemized Deductions Collection/determination of a tax liability Unreimbursed employee business expenses Production of income Deducted only to the extent that the total exceeds 2% of AGI 2-11

12. Deductions & Exemptions Standard deduction Single Joint filers Head of household Married separate $6,300 $12,600 $9,250 $6,300 Additional for elderly or blind Single Married $1,550 $1,250 Exemptions $4,000 2-12

13. Itemized Deduction Phaseout Itemized deductions reduced by lesser of: 3% of excess of AGI over threshold amount, or 80% of the allowable itemized deductions 2-13 Filing StatusThreshold Single$258,250 Head of household$284,050 Married filing jointly$309,900

14. Personal Exemption Phaseout Personal and dependency exemptions are reduced by: 2% for each $2,500 (or portion thereof) by which AGI exceeds threshold amount Filing StatusThreshold Single$258,250 Head of household$284,050 Married filing jointly$309,900 2-14

15. Review Question 1 All of the following are itemized deductions except a.local income taxes. b.investment interest expense. c.casualty and theft losses. d.qualified student loan interest. 2-15

16. Review Question 2 Taxable income is the amount a.remaining after adjustments to income are subtracted. b.from which allowable itemized deductions are subtracted. c.used to determine the tax liability. d.to which tax credits are applied. 2-16

17. Review Question 3 Janet and Bruce Robinson, both age 68, are married taxpayers filing jointly with itemized deductions consisting of the following: Their AGI for 2015 is $462,100. What is the amount of their allowable itemized deductions? a. $34,400 b. $35,034 c. $40,495 d. $58,955 2-17 Home mortgage interest State income taxes Property taxes Charitable contributions Tax return preparation fee Unreimbursed medical expenses $19,500 $8,700 $5,200 $6,200 $895 $18,460

18. Review Question 4 Tyler and Liz Slater, married taxpayers filing jointly, have two dependent children. Their AGI for 2015 is $360,150. What is the amount of personal and dependency exemptions that the Slaters may deduct? a.$6,720 b.$9,280 c.$9,600 d.$16,000 2-18

19. ©2015, College for Financial Planning, all rights reserved. Session 2 End of Slides CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Income Tax Planning