Prosource 2005 Tax Act.ppt - Seminars for Tax Pros

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Prosource 2005 Tax Act.ppt - Seminars for Tax Pros Powered By Docstoc
					    Coach Ken

    Mastery Weekend
Tax Update for Top Producers

            Chris Bird Seminars, Inc.
Why you should truly appreciate
  your successful business
• To be involved in the work you love, not the
  work that you have to do
• To be involved in setting your own time
  schedule, not someone else’s
• To not be vulnerable to layoffs, downsizing, or
  another persons attitude
• To be able to earn what you are worth, with
  no artificial limits such as pay scales, age, or
• The story of Bruce

•   2005 Tax Update
 Let’s think outside of
        the box
• Tax Rates, both marginal tax rates and
  capital gains tax rates, have never been
• Reconsider the question of pay now or
  pay later-the taxes later will undoubtedly
  be higher than they are today
• Reconsider the 1031 exchange, or the
  maximum contribution to a retirement plan
 Thinking outside the box

• Paying taxes should not be the top
  motivator in investment and financial
• The story of Richard
Ongoing discussions in DC

• A changing tax climate in Washington
  – Administration and Congress looking for
    revenue generators
  – National Sales Tax appears to be out of the
    question---Bush concerned over potential loss
    of mortgage interest deduction
  – SUV deduction may be reduced again
  – Home equity loan interest deduction is on the
  – Charitable deduction of facades on hit-list
Ongoing Issues in Washington

• Tax cheating on the rise
  – Most in ranks of self-employed
  – Partnerships and S Corporations
  – Tipped Employees
  – Gamblers
• Count on a lot more IRS audits
Ongoing Issues in Washington

• Estate Tax repeal tops the list of proposed
  tax legislation in the HR, but the Senate
  says NO---Compromise possible, but NO
  repeal, just raise the exemption to $5-
  10M, plus cut the high tax to 25% from
• 15% top rate on dividends and capital
  gains would be extended to 2010
Ongoing Issues in Washington

• Raise AMT exemption
• Hurricane Katrina Issues 9/15/05
  – Charitable Contributions
  – Retirement Plan Distributions/Recontribution
  – Contributions
  – Employment Credits
  – Casualty Loss Improvements
  – Dependency exemption of $500
Presidents Tax Reform Panel

• Flatter rate structure, eliminate some
  brackets, lower top rate from 35% to 25-30%
• Permanent Estate Tax Repeal
• Diffuse the AMT
• Raise first year expensing to $200,000
• Loss of the state and local tax deduction
• Put in place a low rate consumption tax
• All of this for consideration in 2006
Presidents Tax Reform Panel

• USA Today Article 10/12/05
  – Eliminate AMT, but take away other tax
    benefits to make changes revenue neutral
  – Reduce home mortgage interest deduction
    from $1M indebtedness to around $300K, but
    making adjustments for regional differences
  – Capping the exemption for employer provided
    health care
  – Letting taxpayers who do not itemize
    deductions to deduct charitable contributions
 Other Tax Law Changes

• Election of General Sales Tax Deduction
  – Really works if you live in a no state income
    tax state
• College and Tuition Fees deduction is up
  to $4,000 in 2005, but there are income
  limits on those otherwise eligible
• Costs of starting up (SU and ORG) new
  business are deductible up to $5,000
• SMR Rate 48.5 effective 9/1/05
 Other Tax Law Changes

• Gain on sale of home acquired in a 1031
  exchange must now be owned a minimum
  of 5 years to qualify for the $250K/$500K
• Standard mileage rate can now (2004) be
  used for up to 4 vehicles driven by a
  business at same time
• Crackdown of donations of cars, boats,
  and airplanes starting 1/1/05
 Other Tax Law Changes

• Seniors (over 70) have a better shot at
  converting IRA’s to ROTH IRA’s
Capital Gains & Income Tax Top
Rates . . .

• Certain Improvements are eligible through
  – Qualified leasehold improvements
  – Qualified restaurant property

  – 15 year depreciable life
  – Building must be at least three years old
  A sneak attack in April

• The Alternative Minimum Tax
  – Separate system designed to tax high
    income, high net worth individuals
  – Started in 1969, when Congress identified
    approx. 175 individuals with AGI in
    excess of $200,000 who paid no income
  – Expected to affect 40 million taxpayers by
    2010, if law is left as is
  – USA Today Article 2/8/05-No plans to
    reduce taxes resulting from AMT-revenue
Alternative Minimum Tax

• 20-22 tax provisions are targeted under the
  AMT, among which are:
     • State and local income taxes
     • RV interest expense
     • Boat interest expense
     • Too many kids
     • Incentive stock options
     • Fast depreciation deductions
     • High capital gains
     The SUV write-off

• Vehicle must have a GVWR>6,000 lbs.
• Cannot ever use standard mileage rate on
  same vehicle
• Law change effective for vehicles
  acquired after 10/22/04
• Potential for more changes with tax
  climate in Washington
The SUV deduction lowered

I told you I told you I told you-

• Congress started talking about this in October
  of 2003
• I mentioned this at Sell-a-Bration in New
  Orleans last year
• Congress finally acted on it
If purchased NEW by 12/31/04

          Cadillac SLS-Not an SUV

•   Cost    $55,000
•   Bus Use   90%
•   Basis   $49,500
•   Deprec. $10,610

• Total first year deduction is only   $10,610
If purchased new or used
      after 12/31/04

Total first year deduction is only   2,960
       Cadillac Escalade-
        This is an SUV!!

•   Cost     $55,000
•   B/U          90%
•   Bus Base $49,500
•   IRC 179 $49,500

• Totally written off, if purchased new or used
  10/22/04 or before.
• If purchased between 10/23/04-
  12/31/04, then deduction looks like
• And if purchased after 12/31/04
       Cost        $55,000
       Bus Use        90%
       Basis       $49,500
       IRC 179     $25,000
       Reg Dep.    $ 4,900
       Total   $29,900
        Retirement Plan
       Contribution Limits

Year    IRA    Simple 401(k) Def    % of
                             Cont   Profit
2004    3000   9000   13000 41000 20/25

2005    4000   10000 14000 42000 20/25
   Retirement Plan Catch-Up
Provisions-If 50 years old or more

 Year        IRA      Simple   401(k)
 2004        $500     $1,000   $3,000

 2005        $500     $2,000   $4,000

 2006        $1,000   $2,500   $5,000
 and later
      The 401(k) series

• A good way to increase retirement plan
  contributions on lower levels of profit.
• Must be started by end of first year, you
  can’t wait until the following year to set up
  like a SEP IRA
• Only problem is that if a self employed
  person is not maximizing contributions to
  their current retirement plan, they won’t do
  it to the 401(k) either
       The 401(k) series

• Solo (k) or Safe Harbor 401(k)
• Profit $50,000 $80,000 $200,000

•   Cont: $14,000 $14,000 $14,000
•   +25%    12,500 20,000 28,000*
•   =      $26,500 $34,000 $42,000
•   Vs SEP $12,500 $20,000 $42,000
      The ROTH 401(k)

• Do not forget this one. Brand new for
• We are waiting for IRS Regulations on
• Taxpayers will be able to put in elective
  deferrals up to $15,000, plus catchup
  provisions, into an after-tax ROTH 401(k)
    Tax Acts of 2003-2004
     Tax Rate Reductions

                  2002    2003-2010
Top Bracket       38.6%   35%
Fifth Bracket     35%     33%
Fourth Bracket 30%        28%
Third Bracket     27%     25%
Sec. Bracket      15%     15%
Initial Bracket   10%     10%
Capital Gain and Dividend Rate
Reductions-An Investor’s Dream

                 2002         2003-2008
 Capital Gains   20%          15%
 Capital Gains   10%          5% thru 2007,
 Rate for L/I                 0% in 2008
 Dividends Tax   As high as   15%
 Rate            38.6%
 Dividend Tax    As high as   5% thru 2007,
 Rate for L/I    38.6%        0% in 2008
   Tax Acts of 2003-2004

            2002      2003-2007

IRC 179     $24,000   $102,000 2004

Deduction             $105,000 2005
 A health insurance crisis

• Chris and Kay Bird, 2 healthy 50ish
  – 2003 premiums, $689 per month
  – 2004 premiums, $866 per month
  – 2005 premiums, $1,002 per month
  Sorry---don’t think so, but what is the
    Enrolled in HSA program 1/1/05, monthly
    premiums are $436 per month
 Health Savings Accounts

• Part of the Medicare Bill passed 1/1/04
• Looks to be better than MSA’s (Medical
  Savings Accounts, and are available to
  more people
• Excellent for healthy individuals,
  mandates high annual deductible,
  resulting in lower premiums.
• If you are not insurable, the HSA will not
Health Savings Accounts

• Provides annual deduction equal to
  annual deductible, and withdrawals to
  pay medical bills are tax free.
• MSA’s can be rolled into HSA’s
• This could be the answer to the higher
  premium costs we are all seeing
Health Savings Accounts

• Requires 2 components
 – A qualified high deductible health
   insurance plan
   • With an established insurance company
 – An individual tax savings or investment
   • With a local bank, or in the alternative, with
     the insurance company
   • To pay for routine medical expenses/and or to
     provide savings for the future
Who is eligible for an HSA?

• An individual needs to be covered under a
  qualified high deductible health plan
  – Individual Coverage-$1,000 minimum
    annual deductible with an annual out of
    pocket maximum of $5,000
  – Family Coverage-$2,000 minimum annual
    deductible with an annual out of pocket
    maximum of $10,000
  – No co-pays for doctor visits or prescription
Who is not eligible for an HSA?

• Any individual covered by a health plan
  that is not a qualified high-deductible
  health plan
• Any individual who is claimed as a
  dependent on someone else’s tax return
• Any individual who is both eligible and
  enrolled in the Medicare program-65
  years or older
Health Savings Accounts

• How much can be contributed to an
  HSA in calendar year 2005?
  – Individual Coverage-Either your plan
    deductible, or $2,650, whichever is less
  – Family Coverage-Either your plan
    deductible, or $5,250, whichever is less
   There is a saying-
  and it goes like this

You do not want to come to the end of
your life in perfect health, with a
perfect body and never having taken a
chance instead
You want to come to that point racing
to the end, with a spent body, with a
glass of champagne and a Cuban
cigar in your hand, with rasping
breath, yelling,
                 What a ride!!!!!!!!!
      Thank You!!!!
• It has truly been my pleasure being in
  front of you today

• I am honored!

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