©2015, College for Financial Planning, all rights reserved.

Session 3Income Tax Calculation and Tax Credits

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMIncome Tax Planning

Session Details

Module 1

Chapter(s)

1 and 2

LOs 1-6 Analyze a situation to calculate taxable income.

1-7 Analyze a situation to calculate available tax credits or total tax due.

3-2

Steps in the Calculation Process

3-3

Steps in the Calculation Process

3-4

Tax Computation

3-5

Tax Rate Schedule

Assume a married couple filing jointly with $250,000 taxable income.

The tax is $50,765.00 + 33% ($250,000 – $230,450). $51,557.50 + $6,451.50 = $58,009.00.

3-6

Married Individuals (and surviving spouses) Filing Joint Returns

$0 $18,450 10% of taxable income

18,450 74,900 1,845.00 15% 18,450

74,900 151,200 10,312.50 25% 74,900

151,200 230,450 29,387.50 28% 151,200

230,450 411,500 51,577.50 33% 230,450

411,500 464,850 111,324.00

35% 411,500

464,850 129,996.50

39.6% 464,850

Adoption Credit

• Nonrefundable credit up to $13,400 (for 2015)

• Reasonable expenses—travel, court costs, attorney fees, etc.

• Under age 18 or unable to care for self• Not available for adopting stepchildren• Phaseout between approximately

$200,000 and $240,000 • If special needs adoption, no out of pocket

necessary• Just know concept, don’t need to memorize

numbers3-7

Child Tax Credit

• $1,000 credit per dependent child• Just for having a dependent under age 17• Generally, a nonrefundable credit

o Sometimes refundable if taxpayer is eligible for the (refundable) earned income credit

• Phased out $50 for every $1,000 above $110,000 for joint filers, $75,000 for single filers

3-8

Child & Dependent Care Credit• No phaseouts!• Qualifying expenses to allow parent(s) to

be gainfully employed outside of home• Qualifying individuals include

o care for dependent under age 13o taxpayer has a dependent (such as a parent)

or spouse unable to care for themselves• 20% of qualified expenses, up to

o $3,000 for one childo $6,000 for 2 or more children

• Higher tax bracket—better off with dependent care reimbursement account under §125

3-9

Income Tax Terms (Review)

3-10

Income Tax Terms

3-11

Income Tax Terms

3-12

Income Tax Terms

3-13

Income Tax Term

3-14

Income Tax Term

3-15

Major Forms & Schedules

3-16

Review Question 1

Taxable income is the amounta. 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.

3-17

Review Question 2 Nancy and Ken Price will spend $8,500 on day care for their two children (ages 9 and 10) in the current tax year. These expenses were incurred to allow both Nancy and Ken to work outside the home. Their adjusted gross income is estimated at $92,000.What is the amount of child care credit, if any, to which they are entitled?a. $0b. $600c. $1,200d. $1,700

3-18

Review Question 3

Jack and Mary Ramey, both 58 years old, are married and file a joint income tax return. They have two dependent children, ages 18 and 19. In the current year, Jack earned $85,000, and Mary earned $155,000. The Rameys will contribute a total of $13,000 to their IRAs and anticipate total itemized deductions of $15,000. Neither Jack nor Mary is covered by a company pension plan. Based on the information given, what will be the Rameys’ total tax due for 2015? a. $41,932b. $45,572c. $46,132d. $47,392

3-19

©2015, College for Financial Planning, all rights reserved.

Session 3End of Slides

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMIncome Tax Planning