Family Tax Planning
While the nuclear family remains the center point of society, today it is under tremendous economic and social pressure. This family tax planning course is designed to cover “hot” topics having a direct impact on the practitioner who represents any client with family issues. The emphasis is on using tax solutions to ease family economic concerns permitting the practitioner to be a real tax hero.
Course No. 9004
Format: Online pdf (720 pages). Printed book available.
Prerequisites: General understanding of federal income taxation
CPE Credit: 24 hrs.
Field of Study: Taxes
Course expiration: You have one year from date of purchase to complete the course.
Course Revision Date: May 2023
Learning Assignments & Objectives
At the start of Chapter 1, participants should identify the following major topics for study:
* Marital status
* Joint return
* Separate returns
* Head of household
* Divorce costs
* Withholding & estimated tax
* Community property states
* Ending the community
* Living together
After reading Chapter 1, participants will be able to:
1. Determine how filing status affects taxpayers’ filing requirements, standard deductions, and correct tax by:
a. Specifying divorce tax implications and the requirements and effects of filing as married or unmarried;
b. Identifying the requirements of filing a joint return and how to avoid being penalized;
c. Recognizing the key elements of filing separate returns including what items to report and whether or not married taxpayers should file separate returns; and
d. Identifying the requirements for filing as head of household and the tax advantages and disadvantages of this filing status.
2. Select the number of pre-2018 exemptions a client could have and state the impact said exemptions had by:
a. Recognizing the former phaseout of exemptions showing its tax impact on taxpayers, identifying when exemptions could have been taken for spouses, and specifying prior reporting requirements for dependent exemptions;
b. Citing the requirements for pre-2005 dependency particularly relationship, married person, citizen or resident, and income;
c. Identifying the former regular and special method for determining support recognizing complications from back child support and multiple support agreements;
d. Determining the current “qualified child” standard using residency, relationship, age, and joint return prohibition; and
e. Specifying the requirements to treat a child as a qualifying child of a non-custodial parent.
3. Determine deductible and nondeductible divorce expenditures, identify which spouse is subject to tax imposed upon withheld wages, and specify the effects of making separate estimated tax payments or joint declarations of estimated tax.
4. Recognize the special rules that apply to community property states and identify whether clients are affected by these rules by:
a. Determining what constitutes community property naming community property states and the effects of conversion and commingling of property including how to avoid such issues;
b. Identifying community income earned by married couples by:
i. Specifying reporting guidelines, identifying how to separate income earned and received into community property and separate property and recognizing what income and property belongs to which spouse when they have different residency statuses;
ii. Identifying requirements for the special community income allocation rules of §66(a) and determining a community property termination and the treatment of alimony payments; and
iii. Recognizing the importance of statements and records to provide estimates of a former spouse’s income and identifying conditions for tax relief.
5. Determine the effect of living together on filing statuses and dependency citing differences between the married tax rate and other tax rates, identify the tax consequences of having a living together contract listing tax traps, and specify the results of Marvin v. Marvin.
After studying the materials in Chapter 1, answer the exam questions 1 to 10.
At the start of Chapter 2, participants should identify the following major topics for study:
* Child tax credit
* Income earned by children
* Unearned income of children under 18
* Adoption credit
* Child or dependent care credit
* Qualifying person
* Keeping up a home
* Employment related expenses
* Allowable amount & reporting
* Dependent care assistance
After reading Chapter 2, participants will be able to:
1. Identify the child tax credit listing the requirements for qualifying child and determine the tax treatment of earned and unearned income for children.
2. Recognize the elements of the adoption tax credit stating qualifying costs and fees, specify the tests for the §21 dependent care credit and identify qualifications for §129 dependent care assistance.
After studying the materials in Chapter 2, answer the exam questions 11 to 14.
At the start of Chapter 3, participants should identify the following major topics for study:
* Work-related educational expenses
* Educational expense credits
* Education savings accounts
* Deduction for student loan interest
* Qualified tuition programs
* Higher education expense deduction
* IRA withdrawals for education expenses
* Scholarships & fellowships
* Educational savings bonds
* Educational incentives & financial aid
After reading Chapter 3, participants will be able to:
1. Determine the differences between qualifying §162 deductible and nonqualifying education and specify education expense credits under §25A listing covered costs and fees.
2. Identify the benefits and requirements of §530 education savings accounts, specify the deductible portion of student loan interest payments and determine the §108 exclusion for the forgiveness of certain student loans.
3. Recognize the mechanics and requirements of available educational benefits by:
a. Identifying the benefits of prepaying or contributing to a student’s education stating how taxpayers may deduct higher education expenses;
b. Specifying the tax consequence of withdrawing amounts from an IRA for education expenses under §72(t) and the employee advantages §127 employer-provided educational assistance; and
c. Determining the differences between §117 tax-free scholarship payments and those that are taxable and identifying which education savings bonds qualify for the §135 exclusion of interest from gross income.
4. Identify educational incentives and financial aid available to students and parents.
After studying the materials in Chapter 3, answer the exam questions 15 to 23.
At the start of Chapter 4, participants should identify the following major topics for study:
* Medical costs
* Medical deductions
* Health savings accounts
* Accelerated death benefits
* Charitable contributions of cash
* Charitable contributions of property
* Casualty & theft losses
* Deductible & nondeductible losses
* Disaster area losses
After reading Chapter 4, participants will be able to:
1. Identify deductible §213 medical care expenses for federal tax purposes by:
a. Recognizing deductible medical costs paid for spouses and dependents listing dependency requirements;
b. Determining the deductibility of specific medical care expenses including medical insurance premiums, costs for meals and lodging, transportation expenses, costs for cosmetic surgery, expenditures for making permanent improvements to a home and lifetime care advance payments;
c. Specifying the benefits of medical savings accounts showing differences such accounts have with health savings accounts, recognizing the benefits and qualifications of HSAs, and determining high deductible health plans stating how they relate to HSAs;
d. Recognizing the mechanics of prescription drug plans and specifying what constitutes accelerated death benefits; and
e. Determining the deductibility of health insurance by self-employed taxpayers.
2. Specify variables that impact the deductibility of §170 charitable contributions identifying qualified organizations and limitations for these purposes naming the types of contributions that can be made, their tax treatment, and substantiation requirements.
3. Determine what constitutes casualty and theft, and specify the rules for taking a deduction for all or part of each loss under §165.
After studying the materials in Chapter 4, answer the exam questions 24 to 32.
At the start of Chapter 5, participants should identify the following topics for study:
* Capital gains rates
* Rate groups
* Home sales under §121
* Special rules for ownership & use requirements
* Prorata exception
* 1099-S reporting
* Distance & time tests for moving expenses
* Deductible moving expenses
* Reporting moving expenses
After reading Chapter 5, participants will be able to:
1. Recognize the relationship between home sales and the capital gains rates, and specify the rate “baskets” created by the capital gain provisions stating how to treat capital assets in each category.
2. Determine the key elements of the §121 home sale exclusion and its application, and specify the safe harbor proration provisions associated with the home sale exclusion.
3. Identify whether a taxpayer meets the former distance and time tests for deductible pre-2018 moving expenses under §217.
After studying the materials in Chapter 5, answer the exam questions 33 to 38.
At the start of Chapter 6, participants should identify the following topics for study:
* Secured debt
* Qualified home
* Special situations
* Mortgage interest statement – Form 1098
* Special rule for cooperative housing
* Home acquisition debt
* Home equity debt
* Mixed-use mortgages
* Grandfathered debt
After reading Chapter 6, participants will be able to:
1. Identify categories of mortgages and characteristics of secured debt that influence the deductibility of interest, determine what constitutes a “qualified home,” and specify special situations that affect qualified home mortgage interest.
2. Recognize the general rule for the tax treatment of points specifying exceptions and identify when a taxpayer will receive a Mortgage Interest Statement – Form 1098 and which information is included on this statement to figure interest deductions.
3. Determine when a stock in a cooperative housing corporation owned by a tenant-stockholder is a qualified home and, identify the limits on the home mortgage deduction.
After studying the materials in Chapter 6, answer the exam questions 39 to 44.
At the start of Chapter 7, participants should identify the following topics for study:
* Family Tax Planning: Property rights
* Premarital agreements
* Application of §1031
* Incident to divorce
* Property basis
* Purchases of residence between spouses
* Purchases of business interests between spouses
* Selected asset divisions of residence & business interests
* Real & personal property
* Pension benefits
After reading Chapter 7, participants will be able to:
1. Identify forms of marital property stating their likely division in marital property settlements and specify the legal principles used in dividing assets and providing support on divorce or separation.
2. Recognize the benefits of premarital agreements in avoiding potential divorce problems, determine elements of the Uniform Premarital Act, and list the provisions that are allowed in such agreements.
3. Determine the tax consequences of various property settlements by:
a. Identifying the requirements of §1041 stating how it changed the result of U.S. v. Davis and their application to common interspousal transfers;
b. Specifying factors that influence whether a property transfer is “incident to divorce” identifying how to meet these factors or avoid §1041 altogether;
c. Recognizing the treatment of transfers in trust under §1041(e), and specifying the tax treatment of third party transfers on behalf of a spouse or former spouse;
d. Determining property basis as a result of §1041 transfers applying §1041 where the transferee assumes liabilities encumbering the property; and
e. Identifying the holding period for assets transferred between spouses incident to divorce.
4. Specify the dangers of interspousal purchases including deferred tax liability, determine three effects of purchasing an interest in tangible personal property or real property used in a trade or business or held for investment, and identify potential depreciation recapture.
5. Determine the tax consequences of selected asset divisions incident to divorce and those that follow bankruptcy.
After studying the materials in Chapter 7, answer the exam questions 45 to 58.
At the start of Chapter 8, participants should identify the following topics for study:
* Divorce or separation instrument
* Alimony requirements of instruments executed after 1984
* Alimony requirements of instruments executed before 1984
* Deducting alimony paid & reporting alimony received
* Recapture of alimony for type A & B agreements
* Alimony substitution trusts & annuities
* Alimony paid by an estate
* Child support
* COBRA coverage
* Qualified medical child support orders
After reading Chapter 8, participants will be able to:
1. Determine what constitutes “alimony” and “separate maintenance payments” under §71 and their deduction or income treatment under §215 before and after 2019, specify types of §71 “divorce or separation instruments” and identify how having an invalid decree, an amended instrument, or a premarital agreement impacts such an instrument.
2. Define alimony for instruments executed after 1984 based on the seven alimony requirements by:
a. Determining whether a cash payment is deemed made to or on behalf of a former spouse in order to characterize it as alimony or otherwise;
b. Specifying when spouses are members of different households and the alimony pitfall of being required to make payments after a former spouse’s death;
c. Determining what constitutes child support and alimony citing their different tax treatment particularly of payments made by a spouse who files a joint return with the recipient spouse; and
d. Selecting which payments are subject to the provision establishing a minimum term for alimony.
3. Identify the alimony and child support provisions that currently apply with those that applied to instruments executed prior to 1985 by:
a. Specifying pre-1985 alimony requirements, and determining periodic payments stating whether certain payments would have qualified under these rules; and
b. Determining a marital or familial relationship specifying the similarities and differences in the treatment of child support under current law and previous law.
4. Recognize the pre-2019 deduction of alimony paid and reporting of alimony received, recognize the use alimony trusts to realize tax advantage and security, determine alimony recapture, and identify the use of annuity contracts and the tax treatment of alimony paid by an estate.
5. Specify the tax treatment of child support recognizing events that determine whether a contingency is clearly child-related recalling how to rebut this presumption of child support and identify COBRA rules and qualified medical child support orders to make the most of health care coverage plans.
After studying the materials in Chapter 8, answer the exam questions 59 to 68.
At the start of Chapter 9, participants should identify the following topics for study:
* Family Tax Planning: Goals v. purposes
* Investment purposes
* Myths of retirement
* Investment goals
* Investment needs of five critical decades
* Investment vehicles & entities
* Retirement—the ultimate objective
* Retirement costs & income needs
* Retirement plan development
* Basic planning elements
After reading Chapter 9, participants will be able to:
1. Identify short-term financial goals and investment purposes, recognize the importance of defining, realistic goals and how investing allocation changes with age.
2. Determine the tax consequences of title holding methods by:
a. Specifying ways to hold title to assets starting with the simplest and most direct way to hold property;
b. Cite the tax benefits and drawbacks of co-tenancies, corporations (both C & S), partnerships, qualified retirement plans, and trusts particularly as they relate to a client’s after-tax investment return; and
c. Identifying custodianship under the uniform acts and determining how an estate can be tax beneficial to taxpayers.
3. Recognize the impact of retirement planning postponement identifying the importance of early planning using the author’s suggested step process, specify a balance sheet method to plan retirement, determine how to diversify portfolios by balancing liquid and nonliquid assets, and identify the purpose of savings listing strategies to save.
After studying the materials in Chapter 9, answer the exam questions 69 to 75.
At the start of Chapter 10, participants should identify the following topics for study:
* Family Tax Planning: Types of income
* Information reporting on taxable income
* Rules of budgeting
* Rules of management
* Managing risk
* Taxes & investment economics
After reading Chapter 10, participants will be able to:
1. Identify the goals of money management listing types of income in order to preserve cash more effectively.
2. Determine how to budget income into cash by containing expenditures and developing discretionary income and control cash, specify how to convert income into assets by purchasing investments, and identify asset acquisition rules.
3. Recognize tax-advantage investments stating management rules, and determine the economic impact of accelerating deductions, postponing tax liability, and leveraging.
After studying the materials in Chapter 10, answer the exam questions 76 to 82.
At the start of Chapter 11, participants should identify the following topics for study:
* Using progressive tax rates
* Deductible business expenses
* Home-office deduction
* C or regular corporations
* S corporations
* Family partnerships
* Kiddie tax trap
* Family Tax Planning: Childcare & education
* Interest-free loans
After reading Chapter 11, participants will be able to:
1. Determine how splitting income among a family group minimizes overall taxes using major income splitting formats, and recognize the use of an unincorporated business to obtain deductible business expense and the home-office deduction.
2. Identify the benefits and requirements of using a C or an S corporation specifying the taxation of these entities including their ability to split income, and determine family members in a §704(e) family partnership.
3. Recognize a custodianship’s ability to split income and contain the “kiddie tax,” identify the use of gifts to reduce death taxes and split income, and specify how to prevent the recharacterization of a loan under §7872.
After studying the materials in Chapter 11, answer the exam questions 83 to 88.
At the start of Chapter 12, participants should identify the following topics for study:
* Qualified deferred compensation
* Basic requirements of a qualified pension plan
* Basic types of corporate plans
* Types of defined contribution plans
* Self-employed plans – Keogh
* Distribution & settlement options of IRAs
* Tax-free rollovers for IRAs
* Roth IRAs
* Simplified employee pension plans (SEPs)
* SIMPLE Plans
After reading Chapter 12, participants will be able to:
1. Determine what constitutes nonqualified and qualified deferred compensation plans identifying their benefits and contribution limits and specify the current and deferred advantages and disadvantages of corporate plans listing fiduciary responsibilities and prohibited transactions.
2. Identify the requirements of basic forms of qualified pension plans enabling clients to compare and contrast such plans.
3. Determine the requirements of defined contribution and defined benefit retirement plans and specify the types of defined contribution plans recognizing their impact on retirement benefits.
4. Identify the differences between self-employed plans and qualified plans from other business types and owners citing key choice of entity factors.
5. Specify the requirements of IRAs, SEPs, and SIMPLEs, and recognize tax-free Roth IRA distributions listing strategies to maximize plan benefits.
After studying the materials in Chapter 12, answer the exam questions 89 to 102.
At the start of Chapter 13, participants should identify the following topics for study:
* Prior law for annuity payments
* Mandatory basis rule for annuity payments
* Nonqualifying lump-sum distributions
* Treatment options for lump-sum distributions
* Eligible rollover distributions
* 20% withholding
* Rollover period
* Premature distributions
* Minimum distribution rules
* Making charitable gifts with plan balances
After reading Chapter 13, participants will be able to:
1. Identify popular ways to receive distributions from a retirement plan or an IRA, specify types of annuities and their effect on how and when participants receive payments, determine the tax on annuity payments using either the general rule or the simplified general rule and recognize lump-sum distributions and their special tax treatment.
2. Cite the key components of rollovers that can be used to reinvest cash or other assets without including the amount in income.
3. Specify the tax consequences of taking premature distributions assisting clients in avoiding the 10% penalty, and recognize the minimum distribution rules stating how to avoid the 50% penalty associated with taking either smaller distributions than required or distributions after the required beginning date for minimum distributions.
After studying the materials in Chapter 13, answer the exam questions 103 to 108.
At the start of Chapter 14, participants should identify the following topics for study:
* Managing the estate
* Medicaid & countable assets
* Medicaid & non-countable assets
* Medicaid & inaccessible assets
* Private insurance
* Healthcare decisions
* Supplemental security income
* Income & assets
* Disability benefits
After reading Chapter 14, participants will be able to:
1. Identify ways to manage an incompetent person’s estate specifying their uses and benefits.
2. Recognize the basic eldercare benefits of Medicare and Medicaid, specify what constitutes income and the three separate asset groups for Medicaid, determine differences and requirements for Supplemental Security Income and Social Security disability benefits, and identify common health care decisions such as having a living will.
After studying the materials in Chapter 14, answer the exam questions 109 to 112.
At the start of Chapter 15, participants should identify the following topics for study:
* Provisions of wills
* Requirements of wills
* Executors and guardians
* Types of wills
* Title implications
* Changes to a will
* Advantages of a will
* Simple will
* Probate pros and cons
* Probate avoidance
After reading Chapter 15, participants will be able to:
1. Specify types of wills citing functions a will can perform, identify types of bequests, determine the duties of executors and guardians, and recall ways to hold title and their tax ramifications.
2. Identify advantages of a properly drafted will, determine the distribution flow of simple wills, and specify the pros and cons of probate proceedings.
After studying the materials in Chapter 15, answer the exam questions 113 to 116.
At the start of Chapter 16, participants should identify the following topics for study:
* Unlimited marital deduction
* Applicable exclusion amount
* Stepped-up basis
* Basic estate planning goals
* Simple will
* Types of trusts
* Charitable trusts
* Insurance trusts
* Family documents
* Private annuities
After reading Chapter 16, participants will be able to:
1. Recognize the unlimited marital deduction and its effect on the gross estate of the value of property, determine the applicable exclusion amounts for various years of death, and specify what constitutes “stepped-up basis” and the repealed “modified carryover basis” for estate tax purposes.
2. Identify estate-planning goals, recognize the benefits and drawbacks of the primary dispositive plans, specify the various types of estate trusts and family estate documents, and recall the former advantages and disadvantages of the private annuity.
After studying the materials in Chapter 16, answer the exam questions 117 to 120.