Basics In Tax Preparation 101. Presented by Savant Capital Management, Inc. Tawn M. Jacobs MST, CPA, CFP Scott K. Laue JD, CRPS SM

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1 Basics In Tax Preparation 101 Presented by Savant Capital Management, Inc. Tawn M. Jacobs MST, CPA, CFP Scott K. Laue JD, CRPS SM

2 Tawn M. Jacobs MST, CPA, CFP Senior Financial Planner/ Director of Financial Planning Extensive experience consulting on tax issues and tax planning Prior to joining Team Savant, Tawn owned her own accounting firm and later spent many years as a senior manager in the tax and wealth management departments of a major CPA firm. Holds a Master of Science in Taxation (MST) Joined Team Savant in June 2004

3 Scott K. Laue JD, CRPS Financial Advisor 18 years experience in the financial services industry Earned his JD from the Valparaiso University School of Law Certified Retirement Plan Specialist (CRPS) Recently completed the Certified Pension Trustee Program Sits on the Profit Sharing/401(k) Council of America Research Committee Joined Team Savant in February 2008

4 There is nothing certain in life but death and taxes. Benjamin Franklin

5 Tonight s Agenda I. Case Study II. III Changes IRA Discussion IV. Pre-Submitted Questions V. Questions and Discussion

6 Case Study Information for 2008 Tax Year John Doe age 71 Jane Doe age 66 IRA January 1, 2008 John - $800,000 Jane - $150,000

7 Case Study Information for 2008 Tax Year John Doe (71); Jane Doe (66); IRA 1/1/08; John - $800,000; Jane - $150,000 INCOME Portfolio Income Interest - $300 Municipal Interest - $1,000 US Treasury Bond Interest - $500 Qualified Dividends - $6,000 Non-Qualified Dividends - $1,000 Capital Gain Distribution - $500 Pension John - $4,000 Social Security John - $20,000 Jane - $10,000 IRA Required Minimum Distribution RMD factor for 71 year old = $800,000/26.5 = $30,189

8 Portfolio Income Types of Portfolio Income Interest Taxable Municipal U.S. Treasury Bond Dividends Non-Qualified Qualified Capital Gain Distributions Long and Short-term Capital Gains

9 IRA Distributions RMDs waived in 2009 (one year only) Required at 70 ½ In year you become age 70 ½ - have until April 1 of the following year to take the first distribution If opt for above, then you will take 2 distributions in same year IRA to Charity if over 70 ½ and prior to

10 Social Security Prior to 1984, Social Security Benefits were not taxed. Now Taxed: First, add one half of the total social security you received to all your other income, including any tax exempt interest and other exclusions from income Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

11 Social Security The 2009 base amounts are: $32,000 for married couples filing jointly $25,000 for single, head of household, or qualifying widow/widower with a dependent child $0 for married persons filing separately who lived together during the year

12 Capital Gains and Losses Date Acquired Date Sold Fund Name Sales Proceeds Cost Basis Gain/ (Loss) Short Term/ Long Term 1/2/2008 8/5/2008 Large Cap Fund 5,000 7,000 (2,000) ST 6/1/2003 2/1/2008 S&P 500 Fund 15,000 5,000 10,000 LT 12/1/2007 3/1/2008 Emerging Market Fund 10,000 5,000 5,000 ST 1/1/ /20/2008 Small Cap Fund 6,000 26,000 (20,000) LT

13 Capital Gains and Losses Date Acquired Date Sold Fund Name Sales Proceeds Cost Basis Gain/ (Loss) Short Term/ Long Term 1/2/2008 8/5/2008 Large Cap Fund 5,000 7,000 (2,000) ST 6/1/203 2/1/2008 S&P 500 Fund 15,000 5,000 10,000 LT 12/1/2007 3/1/2008 Emerging Market Fund 10,000 5,000 5,000 ST 1/1/ /20/2008 Small Cap Fund 6,000 26,000 (20,000) LT

14 Capital Gains and Losses Date Acquired Date Sold Fund Name Sales Proceeds Cost Basis Gain/ (Loss) 1/2/2008 8/5/2008 Large Cap Fund 5,000 7,000 (2,000) 12/1/2007 3/1/2008 Emerging Market Fund 10,000 5,000 5,000 Subtotal 3,000 6/1/2003 2/1/2008 S&P 500 Fund 15,000 5,000 10,000 1/1/ /20/2008 Small Cap Fund 6,000 26,000 (20,000) Subtotal (10,000) Line 13 Capital Gain Distribution 500 Subtotal (9,500) Net Capital Loss (6,500)

15 DEDUCTIONS Case Study Information for 2008 Tax Year Medical Expenses - $5,000 Real Estate Taxes - $5,000 Mortgage Interest - $2,000 Charitable Donations - $4,000 Miscellaneous Itemized Subject to 2% - $4,000

16 Deductions and Exemptions Exemptions for 2009 = $3,650 per person. Phased out at higher income levels. Schedule A Itemized Deductions Medical expenses subject to 7.5% AGI Miscellaneous itemized subject to 2% AGI Charitable donations subject to 50% AGI (any excess is carried forward for up to 5 years) Greater of state income taxes paid or sales tax paid (formula) Total itemized deductions start to phase out after $166,800 of AGI (all filers) Standard Deduction MFJ $11,400 (Additional deduction for aged or blind $1,100) Single $5,700 (Additional deduction for aged or blind $1,400) Additional Standard Deduction for Real Estate Taxes MFJ $1,000 and Single $500

17 Tonight s Agenda I. Case Study II. III Changes IRA Discussion IV. Pre-Submitted Questions V. Questions and Discussion

18 Tax Law Changes In 2009 Tax Law Changes in 2009 No RMD requirement for 2009 only Making work pay credit ($400/person) Cash for clunkers ($3,500/$4,500 not taxable-federal) Unemployment benefits not taxed up to $2,400 1 st Time Homebuyer credit (up to $8,000) Alternative Minimum Tax (AMT) exemption increased Standard mileage rate (55 cents) American Opportunity Credit $2,500 (formerly Hope Education Credit)

19 Tonight s Agenda I. Case Study II. III Changes IRA Discussion IV. Pre-Submitted Questions V. Questions and Discussion

20 Retirement Savings Limits Elective deferral limits 401(k) plans, 403(b) plans, 457(b) plans, and SAR-SEPs 1 (includes Roth 401(k) and Roth 403(b) contributions) IRA contribution limits Traditional IRAs Lesser of $16,500 or 100% of participant's compensation Lesser of $5,000 or 100% of earned income Lesser of $16,500 or 100% of participant's compensation Lesser of $5,000 or 100% of earned income Roth IRAs Lesser of $5,000 or 100% of earned income Lesser of $5,000 or 100% of earned income Additional "catch-up" limits (individuals age 50 or older) 401(k) plans, 403(b) plans, 457(b) plans, and SAR-SEPs 2 $5,500 $5,500 IRAs (traditional and Roth) $1,000 $1,000

21 Retirement Savings Phase-Outs Income phase-out range for determining deductibility of traditional IRA contributions for taxpayers: 1. Covered by an employer-sponsored plan and filing as: Single/Head of household Married filing jointly 2. Not covered by an employer-sponsored retirement plan, but filing joint return with a spouse who is covered by a plan Income phase-out range for determining ability to fund a Roth IRA for taxpayers filing as: Single/Head of household Married filing jointly $55,000 - $65,000 $89,000 - $109,000 $166,000 - $176,000 $105,000 - $120,000 $166,000 - $176,000 $56,000 - $66,000 $89,000 - $109,000 $167,000 - $177,000 $105,000 - $120,000 $167,000 - $177,000 Annual income limit for determining ability to convert traditional IRA to Roth IRA $100,000 N/A

22 Tonight s Agenda I. Case Study II. III Changes IRA Discussion IV. Pre-Submitted Questions V. Questions and Discussion

23 Pre-Submitted Question 1 Q: I would like to understand the rules for mandatory withdrawal of pre-tax 401K funds at age 70 ½. How is the tax calculated? A: Traditional & Non Deductible IRAs Age 70 ½ Roth IRAs No RMD Required Retirement Plans (401(k)/Profit Sharing) - Later of retirement or age 70 ½ (unless over 5% owner) Required amount to be withdrawn is based on actuarial tables and value as of 12/31 of the prior year.

24 Pre-Submitted Question 2 Q: How can I determine if I should contribute to a Roth IRA or a tax deductible IRA? A: Items to consider: Eligibility Age Current tax bracket Future tax bracket Existing balances in IRA or Roth IRA Likelihood of regulations changing Multigenerational thoughts

25 Pre-Submitted Question 3 Q: Single individual having over $100,000 in AGI making him ineligible to contribute to a Roth IRA. He is retired and earns a few thousand dollars and not under any plan where he works part time. Can he contribute to a deductible standard IRA regardless of AGI amount? A: Yes, since not covered under a retirement plan at work one can contribute up to the lesser of 100% of earned income or $5,000 ($6,000 if over age 50) to a Deductible Standard IRA. Roth IRA contribution eligibility, regardless if covered by a plan at work, phases out at $105,000 - $120,000.

26 Pre-Submitted Question 4 Q: Widow adds her two daughters to the deed to her home valued at $150,000. Is there a tax obligation for any of the three people involved in this situation at the time of the "gifting" as no money is exchanged? A: Even though no money has been transferred a gift has occurred. Potential gift tax consequences in excess of $13,000 to the donor or could use against lifetime estate tax exclusion ($3,500,000 in 2009). Q: When the home is sold by the widow two years later for $150,000 is there any tax obligation due for any of the three individuals? A: Widow - Gain on sale of primary residence excluded up to $250,000 ($500,000 if within two years of death of spouse). Other two individuals - No gain on sale of Investment Asset since sold for same as cost basis.

27 Pre-Submitted Question 5 Q: Single individual purchases a vehicle in 1964 and uses it for only two years (30,000 miles). He paid $3,000 for the automobile in 1964 and sells it for $10,100 in What is the tax liability and what deductions can be taken to reduce any tax liability? A: Technically sale of an asset subject to Long Term Capital Gain treatment. Any sale related costs could be used to offset gain (auctioneer s cost, transportation, etc.)

28 Questions & Discussion

29 Disclaimer This seminar is not intended to provide individual tax advice, but rather to form a basis for further discussion with your legal, accounting, and financial advisors.

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