Opportunities to Take Advantage of Before Its Too Late

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.

College Savings Plans

Section 529 college savings plans are a great way for anyone to both save for college and reduce his or her taxable estate without losing control over the account.  You have the right to ask for the money back at any time (with earnings subject to both income taxes and a 10% federal penalty).  No other vehicle provides this combination of control and estate reduction.  Growth is tax free as are distributions if used to pay for qualified tuition and most related expenses, and for living expenses if the beneficiary is at least a half-time student. Further, you can retain the right to change beneficiaries.  If your goal is to establish a 529 plan for a beneficiary, you may want to make a large contribution now of up to 5 years’ worth of annual exclusion gifts in one year.  That amounts to $65,000 per child ($130,000 from a married couple) in 2012, and $70,000 per child ($140,000 from a married couple) in 2013.  In this way, there is the potential of greater tax free earnings from the initial contribution, which will also be completely estate tax free once five years have passed. However, you must act now because Congress may act to curb, reduce, or make the requirements for these plans 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.

Annual and Lifetime Gifts

Gifting can play an important role in reducing estate tax exposure.  A gift is the transfer of real and personal property such as real estate, stocks, bonds, mutual funds, certificates of deposit, equipment, livestock, or cash, to beneficiaries before your death.  Gifting  removes all future appreciation on the gifted property from the taxable estate.   It can also accomplish income tax savings during life by shifting income producing property from one family member to another who is in a lower tax bracket.

The lifetime gift exemption for 2012 is set at $5.12 million dollars. However, it is scheduled to be reduced to $1 million dollars in 2013 unless Congress acts.  If you don’t use the current gift tax exemption, you could lose it.

In addition to your lifetime exemption, each donor may give $13,000 this year ($14,000 beginning in 2013)  per person, without any gift tax consequences.   To qualify for the annual exclusion, the gift must be a present interest gift (rather than a future interest).   Annual exclusion gifts can be outright or in trust.

Assume that a husband and wife have two children, each of whom is married, and each of whom has two unmarried children. This couple could give away a total of $208,000 this year without using up any part of their lifetime exemption. (Each parent could give $13,000 to each child, each child-in-law, and each grandchild, for a total of eight individual recipients, or $104,000 of gifts for the husband and $104,000 of gifts for the wife.  In 2013, each parent may gift an additional $1,000 per recipient.)

A gift will qualify for the $13,000 annual exclusion only if it is a gift of a “present interest.” Generally, this means that the (current year) gift must be made outright to the recipient, or (in the case of a person under age 21) to a Custodianship under the Uniform Transfers to Minors Act, or to certain kinds of trusts (typically, a “Crummey Trust”.)   The “present interest” limitation may require that the asset given away be income-producing or currently salable by the recipient.

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.