INDIVIDUAL TAX SEMINAR

1. 1 INDIVIDUAL TAX SEMINAR Fan Li, CPA Lee Financial Services, LLC. Phone: 773-369-4278, 312-842-2628 Email: info@leefinancialsvc.com

2. 2 Disclaimer This seminar and materials provided are for general educational purposes only. Your attorney and accountant should be consulted regarding legal and tax implications. No liability is assumed resulting from the use of the information contained in this seminar and handout materials.

3. 3 Economic Stimulus Act of 2008 - Review From $300-$600 for qualifying individuals Taxpayers with children are eligible for $300/per child No payment to individuals lacking Social Security numbers, except spouse of a member of the US military No payment was mailed after December 31, 2008 The payment is different: Net income tax is less than $600 for single, $1,200 for couple AGI is more than $75,000 for single, $150,000 for couple The taxpayer owes back taxes

4. 4 The �What Ifs� of an Economic Downturn Tax impact of job loss Tax impact of debt related Tax problems

5. 5 Tax Impact of Job Loss (I) Severance pay is taxable. Accumulated leave and vacation pay, sick pay will be included in W-2. Unemployment compensation is taxable. (up to 26 weeks and extended benefits up to an additional 13 weeks) Public Assistance and food stamps is not taxable. Withdrawals from your pension plan or retirement plan are taxable unless they are transferred to a qualified plan in 60 days. If under 59 1/2 , an additional tax may apply (10%). Certain expenses incurred while looking for a new job may be deductible (Schedule A � 2% AGI limitation) Typing, printing and mailing copies of resume Making phone calls Buying papers Travel for look for work in your current occupation or attend an interview Moving costs incur because of a change in job location may be deductible. Distance test � 58 miles Time test � 39 weeks in 12 months

6. 6 Tax Impact of Job Loss (II) The dropdown of 401 (k) can not claim a capital loss. Usually don�t have to pay tax on the first $250,000 for single, $500,000 for couple of gain from the sale of main home. � at least two years of the five years prior to the sales. Full cost of health insurance is deductible � Schedule A HSA is deductible � 1040 Can deduct tuition for educational credits May qualify for earned income credit $38,646 - $41,646 AGI for > one kid $ 33,995 - $36,955 AGI for = one kid $12,880 - $15,880 AGI for no kid.

7. 7 Tax Impact of Debt Related Loss home through foreclosure Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers generally can exclude income from the discharge of debt on principal residence or mortgage restructuring, except second homes or vacation homes. Losses from the sale of personal-use property, such as home, or car, are not deductible. Generally, if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purpose. � 1099 C Debts discharged through bankruptcy are not considered taxable income.

8. 8 Tax Problems If you can�t pay taxes, still file tax on time and pay as much as you can, then contact IRS to discuss payment options. The recovery rebate credit is a one time benefit for people who didn�t receive the full economic stimulus payment last year Free legal representation can help with tax problem.

9. 9 ??,??, ???? Tax Planning is a part of Financial Planning Your tax planning should start at the beginning of the year More tax knowledge you have, more money you save Have professional assist you to reach your financial goal

10. 10 Basic Knowledge - Distinguish Gross Income, Adjusted Gross Income and Taxable Income Gross Income � Wages, salaries, tips, taxable interest, dividends, business income (loss), capital gain (loss), IRA distributions, Rental real estate, unemployment compensation, etc. Adjusted Gross Income � Health savings account deduction, moving expenses, � of self-employment tax, self-employment retirement account deduction, self-employment health insurance deduction, IRA deduction, student loan interest deduction, etc. Taxable Income � Itemized deductions or standard deduction, exemptions

11. 11 Job Loss: Starting Own Business Under the tax law, you can be both an Employee and a Business Owner at the same time. There are three options for a business structures Sole Proprietorship Partnership Corporation As a Sole Proprietor, you need to file a Form 1040, Schedule C and Schedule SE The taxes paid as a Sole Proprietor are: Business income tax Social security and Medicare tax You can still claim the Earned Income Credit on net self-employment

12. 12 Being your own boss, Deduct it! (I) Product Expenses Product Cost + Shipping Fee 1. Product Sale to Customer 2. Product Donate to Prospects (Except: Product Consumed Personally) Transportation Expenses Option 1: Standard Mileage Parking and Toll Option 2: Actual Expense Auto loan or lease Payment Auto Insurance Gas, Maintenance, Repair Auto Depreciation Expense Parking and Toll Travel Expenses Air Ticket, Taxi, Shuttle Hotel & Meal Laundry, Telephone, Tips Baggage and Shipping

13. 13 Being your own boss, Deduct it! (II) Office Equipment & Furniture Computer, Printer, Scanner, Fax Machine, digital & Video Recorder, TV Software Office Furniture, such as File Cabinet, Desk, Chair Telephone Sets and Cell Phone Sets (Note:Can deduct entire cost if the business has enough income, otherwise, depreciate it)

14. 14 Being your own boss, Deduct it! (III) Online Office Annual Fee Books, CD, Video Flyer and Brochure Advertising Seminar Expense and Supply Cartridge, Ink, Toner Paper, Business Card, Letterhead Fax & Copy Postage Entertainment - Ticket to Event (Concert, Ball Game) Meals with Client/Prospect Gift for Client/Prospect CPA Fee Attorney Fee Training Expense Continue Education Magazine Subscription Convention Ticket

15. 15 Being your own boss, Deduct it! (IV) Hiring your Children Up to $5,150 per child, per year no tax Child over the age of 7, under 18 No tax due from the child Description for the job, hour and salary Home Office � Portion Rent Insurance Mortgage Maintenance Telephone & Cell Bills Internet/Email/Website Service Bills Water & Electric Bill Oil & Gas Bill

16. 16 Year end stock tax sales � Taking capital loss Taxpayer�s Situation Recommended Action Has taken a ST gain Take an equivalent loss Has taken a LT gain Sit tight (low 15% rate) Has taken both LT and ST gain Take ST loss up to ST gain Has taken ST loss Sit tight Has taken LT loss Take equivalent ST gain Has taken ST and LT loss Take equivalent ST gain Has taken LT gains and ST loss Take ST gains equal to ST loss Has no gains or losses Take a ST loss up to $3,000 (LT gain at 15% rate, ST gain at ordinary income rate, LT & ST loss is ordinary income loss [3,000 each year]) Wash Sale is not allowed Holding time period is 30 days

17. 17 Being a Landlord Related expenses Advertising Auto and travel Cleaning and maintenance Commissions Insurance Professional fees Management fees Mortgage interests Repairs Supplies Taxes Utilities Depreciation

18. 18 Passive Activity Loss Limitations $150,000 � AGI = AAAA 50% @AAAA = BBBB The smaller of actual loss and BBBB, but no more than $25,000 Non deducted loss can carry forward to next year. Accumulated loss can offset the gain when property sells.

19. 19 Sales of Rental Property � Main Home Exclude up to $250,000/$500,000 of gain realized on the sale of a residence if it was owned and occupied as a principal residence for an aggregate of at least tow of the five year before the sale or exchange. Eligibility Must have owned the home Must have occupied the property Has not used gain exclusion during the prior two year period ending on the date of the sale. Pro-Rate Gain Exclusion A change in place of employment Health Reason Other unforeseen circumstances

20. 20 Sale of principal residence with partial business use (1) Sale of residence with partial business use Separate business structure � only the gain allocable to the residential portion is excludable Within the same dwelling unit, no allocation is required unless depreciation was claimed before Any depreciation claimed on residential property after May 6, 1997 must be reported as taxable gain Taxpayer who depart from a principal residence but do not immediately sell the residence are entitled to rent the property for up to 36 months before reaching loss of eligibility as a principal residence A loss on the sale of a principal residence is not deductible. However, if the residence is converted to rental property for 36 months before it is sold at a loss, the loss is deductible.

21. 21 Sale of principal residence with partial business use (II) If, during the 5-year period ending on the date of sale, you owned the home for at least 2 years and lived in it as your main home for at least 2 years, you can exclude up to the maximum dollar limit. However, you cannot exclude the portion of the gain equal to depreciation allowed or allowable for periods after May 6, 1997. This gain is reported on Form 4797 (PDF),Sale of Business Property. Depreciation is not optional on a rental property. You should claim the full amount you're entitled to claim, since it is subject to recapture whether or not you claim it. (depreciation recapture rate 25%)

22. 22 Rental Property Like-Kind Exchanges Real property located in the U.S. and real property outside of the U.S. are not considered property of a like kind. Time limit must be identified within 45 days of the date of exchange must be received by the earlier of 180 days after the date of transfer

23. 23 Retirement Account Contribution Company 401 (K) Plan Tradition IRA & Roth IRA Excess contribution � 6% penalty Roth conversions Retirement account credit

24. 24 Read This Before Choosing a Tax Preparer Find out what the service fees are before the return is prepared. Avoid preparers who base their fee on a percentage of the amount of your refund Only use a tax professional that signs your return and provides you with a copy of your record Choose a tax prepare that will be around to answer questions after the return has been filed Determine if the preparer�s credentials meet your needs � Is an Enrolled Agent, CPA or Tax Attorney, If so, the preparer can represent taxpayers before the IRS on all matters. Before you sign your tax return, review it and ask questions.

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