At a webinar on Friday, January 29, 2016, I taught a two-hour, two-credit class for CFPs, CIMAs, CPA/PFSs and other financial professionals, covering everything an investment advisor needs to know to serve their clients in the 2016 tax-filing season. (CPAs receive CPE on A4A's live sessions.)
I ran out of time to answer questions from attendees, which indicates how much material there is to cover on this topic.
A4A members can buy the slides to my presentations on A4A here and use them in client presentations, newsletters, webinars, and blogs. At $300 a a year, Andy Gluck says it is one of the best values you can find in marketing a professional financial planning practice.
Here are the questions sent in by the attendees at the financial advisor 2016 tax-filing session, dubbed by Andy as a "2016 tax filing tax extravaganza."
Is there a way to pay a higher combined payment (alimony/child support +) to former spouse and deduct the entire amount?
Alimony is deductible and child support is not. Perhaps a court could change how the payments are allocated between the two. However, that is far outside my area of expertise.
On Slide 64, Bob said that if you're over 70½, you cannot deduct an IRA contribution above the line. What about if that 71-year old (or older) is working for a company and contributes to a 401k? Or a teacher contributing to 403b?
Contributions cannot be made to a traditional IRA after 70½. However, contributions can continue to be made to a 401k and 403b as you imply.
Slide 83- Bob talked about advisory fee deductions. Can Bob confirm that if a client has a brokerage account, an IRA and a Roth, that the fee should ALWAYS be taken from the brokerage account? Didn't quite have time to read the whole side.
Usually, it’s beneficial to take fees from the taxable account in order to maximize the amount that can grow in the tax advantaged accounts and to perhaps allow for a miscellaneous itemized deduction.
Slide 90. When does line 51 of 1040 apply?
How does this differ from the above the line deduction on line 28?
Line 28 offers an above-the-line deduction for contributions to SEP, SIMPLE, and qualified plans. They are entirely different sections that can be combined or used separately.
Is line 28 only for self-employed?
Yes, Line 28 those types of retirement accounts for the self-employed.
How do you figure the tax due on a Roth conversion with three IRA & converting only two?
You’ll need to aggregate the basis in all three accounts and prorate it over the two accounts to be converted. Form 8606 will walk you through the details of the calculation.
Please discuss when it is best to file Married versus Married Filing Separately
Filing jointly will typically produce the lowest tax liability. Although in certain cases it can still be advantageous to file separately:
Page 78, did Bob say the PMI is deductible?
Yes. PMI is deductible for certain taxpayers.
If so, how long has this been the law? Frequently, we're hearing from Brokers that it is not.
It has been in the code since 2006, but it phase-out rather quickly for those with an AGI exceeding $100,000. Moreover, for many years now congress allowed it to expire annually, only to renew it. It was just renewed through the end of 2016. Look at 163(h)(3)(E).
We have been deducting fees from client’s taxable accounts because they have been able to write off the fees. As they have gotten older they can't itemize anymore and write off the fees. Should we deduct fees prorata by account to get a better benefit for the client?
That makes sense for pre-tax accounts because you are still effectively capturing the deductions. However, it might not make sense for Roth accounts unless perhaps if there’s no taxable account to draw from.
Now that the law has been made permanent and clients can contribute directly to charities from their IRA. How does the math work to show the tax benefit of doing this?
By making a donation directly to a qualified charity from an IRA an account holder over the age of 70 and ½ and avoid being taxed on RMD (which would normally be counted as ordinary income) from the account for that year. This is beneficial because the taxpayer does not have to itemize, is not subject to the AGI limitations which apply to charitable contributions, and does not have to consider the effect of the phase-out of itemized deductions.
Is there a calculator to show this benefit? If the money comes directly out of their IRA, they don't pay taxes but they also don't get a writeoff. If they contribute from a bank account, they are using after tax money, but they also get to write off the contribution.
The taxpayer doesn’t get to put the write off on their return, but they also never recognize the distributions income. Taxpayers who make a QCD get the same benefit (or greater) as someone who makes the contribution from their bank account. Many will benefit because they don’t have to run the gamut of other limitations.