Tax laws are changing at the end of this year. Take advantage of these opportunities before it’s too late.
Estate Tax Savings’ Techniques:
Gifting: Use your $5,120,000 gift tax exemption. Next year, the exemption is scheduled to be reduced to $1,000,000. If you don’t use the exemption, you could lose it, and there is little downside as long as you don’t need the assets for future sustenance.
Spousal Access Trusts: Create spousal access trusts to use all or a portion of your gift tax exemption. Your gift tax exemption can be used in a way that still allows you to provide for your spouse.
Valuation Discounts: Utilize valuation discounts for lack of marketability and lack of control. Gift hard to value or fractional interests in property. By doing so, you can leverage your $5.12 million dollar exemption to remove even more property from your estate. These valuation discounts for family owned assets and businesses are under scrutiny by the IRS and Congress. If you wait too long, the law might change and you may lose the opportunity to leave more to your children and grandchildren.
Intra-Family Loans: Make intra-family loans. Interest rates are at all time lows. By loaning money to trusts for the benefit of your children and grandchildren, you can remove virtually all of the appreciation on the loaned funds from your taxable estate, while knowing the principal is still there and can be paid back should you end up needing it.
Income Tax Savings’ Strategies:
Make Distributions: Make dividend payments from C corporations to take advantage of the current 15% tax rate. Next year, the rate is scheduled to go back up to ordinary income tax rates, and the new Healthcare Surtax could apply in certain circumstances making the highest effective tax rate on dividends 43.4%. That is almost a 200% increase in the tax rate on dividends.
Harvest Capital Gains: Sell appreciated assets now rather than next year. The current capital gains rate of 15% is scheduled to rise to 20% next year and with the Healthcare Surtax, the highest effective tax rate on capital gains will be 23.8% in 2013. That’s almost a 60% increase in the tax rate.
Charitable Deductions: Contribute to charities now, when the benefit is 35 cents on the dollar. Proposed legislation will reduce the deduction to 28 cents on the dollar next year. Consider donor advised funds and private foundations that will allow you to have some control after the gift is made.
Fund 529 Plans: 529 plans are a great way to save for college. Growth is tax free, and distributions are tax free if used to pay for qualified tuition and living expenses. You can use up to 5 years worth of annual exclusion gifts in one year – that’s $65,000 per child in one year ($130,000 from a married couple), without using any of your lifetime gift exemption. Act now because Congress may act to curb, reduce, or make the requirements more restrictive.
For more information regarding estate planning, business law or tax controversy and compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.
In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.