MID-YEAR TAX PLANNING IDEAS

Tax planning is a year-round process, so now is a good time to think about the following-

  •  Are you considering making a cash gift to a relative?  If so, consider making the gift in conjunction with the overall revamping of your stocks and mutual funds held in taxable brokerage accounts to achieve better tax results.  Don’t gift loser shares (currently worth less than you paid for them). Instead, sell these shares, recognize the capital loss on your tax return, and then gift the cash proceeds to a relative.  However, do gift winner shares to lower tax bracket relatives (unless they are under age 24 and subject to Kiddie Tax).  The 2014 annual gift tax exclusion is $14,000.
  • Are you considering making a contribution to a favorite charity?  The previous strategies will also work well for contributions to qualified charities.  Sell loser shares, recognize the loss on  your tax return, then give the cash proceeds to the charity and deduct the full current fair market value at the time of the gift (without being taxed on the capital gain).  The tax-exempt organization can sell your donated shares without owing tax.
  • Are you self-employed? Consider employing your child in the business (but pay a reasonable wage for their age and work skills).  This practice can shift income (which is not subject to the Kiddie Tax) to the child who is normally in the lower tax bracket, decrease payroll taxes, and enable the child to contribute to an IRA.
  • Is your estate plan current? If you already have an estate plan, it may need updating to reflect the current estate and gift tax rules.  For 2014, the unified Federal gift and estate tax exemption is a generous $5.34 million, and the rate is 40%.  Furthermore, the impact of the Supreme Court’s Windsor decision and resulting IRS changes in the federal definition of marriage mean that legally married same-sex couples need to revise their estate plan.  Plus, there may be non-tax reasons to update your estate plan.

Please contact us to discuss any tax planning strategies you are interested in implementing.