CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Income Tax Planning
Session 2
Itemized Deductions and
Personal Exemptions
©2015, College for Financial Planning, all rights reserved.
Session Details
Module
1
Chapter(s) 1 and 2
LOs
1-6
Analyze a situation to calculate taxable
income.
2-2
Income Tax Terms
Standard
deduction
• Amount by which nonitemizers reduce AGI
before subtracting personal exemptions to
arrive at taxable income
Itemized
deductions
• Typically personal expenses allowed as a
deduction from AGI; amount by which
itemizers reduce AGI before subtracting
personal exemptions to arrive at taxable
income
2-3
Income Tax Terms
Personal
and
dependency
exemptions
Taxable
income
• A deduction amount for the taxpayer, spouse,
and dependents; deducted from AGI, in
arriving at taxable income
• Amount on which tax the income tax is
computed
2-4
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
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
Tax Computation
2-7
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
Qualified Mortgage Interest
• Acquisition indebtedness
• Home equity indebtedness
• Treatment of points
•
o on acquisition
o on refinance
MIP (through 2014)
2-9
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
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
Deductions & Exemptions
Standard deduction
Single
$6,300
Joint filers
$12,600
Head of household
$9,250
Married separate
$6,300
Additional for elderly or blind
Single
Married
Exemptions
$1,550
$1,250
$4,000
2-12
Itemized Deduction Phaseout
Itemized deductions reduced by lesser of:
• 3% of excess of AGI over threshold amount, or
• 80% of the allowable itemized deductions
Filing Status
Single
Head of household
Married filing jointly
Threshold
$258,250
$284,050
$309,900
2-13
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 Status
Single
Head of household
Threshold
$258,250
$284,050
Married filing jointly
$309,900
2-14
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
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
Review Question 3
Janet and Bruce Robinson, both age 68, are married
taxpayers filing jointly with itemized deductions consisting
of the following:
Home mortgage interest
$19,500
State income taxes
$8,700
Property taxes
$5,200
Charitable contributions
$6,200
Tax return preparation fee
$895
Unreimbursed medical expenses
$18,460
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
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
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Income Tax Planning
Session 2
End of Slides
©2015, College for Financial Planning, all rights reserved.