{"id":15935,"date":"2014-11-12T13:37:39","date_gmt":"2014-11-12T18:37:39","guid":{"rendered":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2014\/11\/business-report-year-end-wealth-planning-ideas.html"},"modified":"2014-11-12T13:37:39","modified_gmt":"2014-11-12T18:37:39","slug":"business-report-year-end-wealth-planning-ideas","status":"publish","type":"post","link":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2014\/11\/business-report-year-end-wealth-planning-ideas\/","title":{"rendered":"Business Report: Year-End Wealth Planning Ideas"},"content":{"rendered":"
\n
\n\"key\n<\/div>\n
Fran O’Rourke, senior vice president of Key Private Bank in the Capital Region\n<\/div>\n<\/div>\n

BY FRAN O’ROURKE<\/p>\n

Since the American Taxpayer Relief Act
\nwas enacted in 2012, the tax burden for affluent
\nAmericans–in many cases also business
\nowners–has increased significantly.<\/p>\n

Including the 3.8 percent Medicare surtax
\non investment income and phase out of itemized
\ndeduction to the highest rate of 39.6
\npercent, the top marginal federal tax rate on
\nordinary income is about 44.6 percent.<\/p>\n

In addition, the top rate for qualified dividends
\nand long-term capital gains is about
\n25 percent. Not to mention state income tax,
\nwhich in New York adds another 8.82 percent
\nof your income to your overall tax burden.
\nThe following 10 wealth planning strategies
\ncan help you take advantage of all available
\nopportunities to reduce your tax bill. The
\nkey is that you must plan early.<\/p>\n

1. Navigate the new income, capital gains,
\nand Medicare surtax tax brackets. Deferring
\ncompensation or capital gains may keep
\nsome taxpayers from jumping into a higher
\ntax bracket. For instance, a taxpayer making
\n$350,000 in taxable income who plans to sell
\nan asset for a $300,000 gain would see most
\nof the gain taxed at 23.8 percent. Selling the
\nproperty on an installment sale or using a
\ncharitable remainder trust to spread out the
\nincome over several years may keep that gain
\ntaxed at only 18.8 percent–a potential tax
\nsavings of nearly $15,000.<\/p>\n

2. Review your investment portfolio. An
\ninvestment portfolio should be diversified to
\nreduce risk, but it should also be tax efficient.
\nInvestors on the cusp of higher tax brackets
\nmay consider investing more in tax-exempt
\nbonds or growth stocks that pay fewer dividends.
\nPlacing more assets in tax-deferred
\naccounts may also be considered.<\/p>\n

3. Take advantage of interest expense.
\nStructure debt in a tax-efficient manner. Few
\npeople know that interest expense on debt
\nthat is used to acquire “taxable investments”
\nis deductible. Since investment interest
\nexpense can also be deducted against the
\nMedicare surtax, it may be even more valuable
\nthan the mortgage interest deduction.<\/p>\n

Even less well known is that cash accounts–
\nwhether or not interest-bearing–can constitute
\na taxable investment for purposes of
\nthe deductions.<\/p>\n

4. Leverage IRA contributions and Roth
\nconversions. Self-employed taxpayers may
\nwish to consider establishing SEP-IRA or
\nother retirement plans, even for a side business.<\/p>\n

All taxpayers, regardless of income,
\nhave the option of converting their traditional
\nIRA to a Roth IRA. Roth IRAs do not require
\nminimum distributions at age 70\u00c2\u00bd and allow
\nfor tax-free income during retirement and
\nfor beneficiaries.<\/p>\n

5. Use appreciated securities for year-end
\ncharitable gifting. The after-tax cost of a
\ncash gift of $10,000 from an individual in the
\ntop bracket is $6,040. On the other hand, the
\nafter-tax cost of a gift of $10,000 worth of
\nzero-basis stock is just $3,540. In addition to
\nthe value of the deduction, the donor avoids
\n$2,500 in capital gains tax.<\/p>\n

6. Take advantage of low interest rates.
\nConsider refinancing intra-family loans and
\ninstallment sales to trusts. These loans can
\nbe as low as .32 percent short term. The minimum rate for three to nine year loans
\nchanges monthly; in 2014, the rate has varied
\nfrom 1.75 percent to a high of 1.97 percent.<\/p>\n

Families of wealth can use these rates
\nto transfer considerable wealth free from
\ngift, estate and generation-skipping transfer
\n(GST) tax. Low interest rates also create
\nthe opportunity to shift significant wealth
\nby using estate planning techniques, such
\nas Grantor Retained Annuity Trusts (GRATs)
\nand Charitable Lead Annuity Trusts (CLATs).<\/p>\n

7. Consider the annual exclusion, increased
\nlifetime gift tax exclusion and 529
\nplans. The annual gift tax exclusion for noncharitable
\ngifts is indexed for inflation and
\nis now $14,000 per donor per donee. If the
\nintended donee is a potential future college
\nstudent, consider gifting to a 529 plan, which
\ncan offer income tax deferral, asset protection,
\nthe ability to change beneficiaries and
\nthe ability to “front load” five years of annual
\nexclusion gifts. Irrevocable trusts can also
\nbetter exploit large gifts.<\/p>\n

Also, taxpayers who used up their full unified
\ncredit amount in 2012 should remember
\nthat, due to inflation adjustments, they received
\nan additional $130,000 of applicable
\nexclusion amount in 2013 and an additional
\n$90,000 in 2014. A married couple who used
\nup their credit in 2012 can make additional
\ngifts of $440,000 this year along with their
\nannual exclusion gifting.<\/p>\n

8. Review estate plans. Now that the
\nexclusion is “permanent,” taxpayers should
\nreevaluate any tax-motivated clauses or bequests
\nin their will or trust. Consider adding
\nflexibility through clauses such as powers of
\nappointment or trust protector provisions
\nto allow adaptations to future tax changes.<\/p>\n

9. Exploit basis and income tax planning
\nloopholes in bypass and other irrevocable
\ntrusts. With fewer estates being subject to
\nan estate tax and capital gains tax rates
\nincreasing, trustees should consider adding
\nprovisions to enable capital gains to be taxed
\nto beneficiaries who may be in lower tax
\nbrackets than the trust.<\/p>\n

10. Exploit estate planning loopholes
\nbefore future “revenue raisers” are passed.
\nMany successful estate tax planning techniques
\ncould be adversely affected by changes
\nCongress and the Obama Administration are
\nconsidering, such as valuation discounts for
\nfamily LLCs or partnerships, GRATs, dynasty
\ntrusts, irrevocable grantor trusts and “Crummey”
\nprovisions that enable better exploitation
\nof the annual exclusion. Taxpayers with
\nestates in excess of $5.3 million ($10.7 million
\nfor a married couple) should strongly consider
\nthe potential impact of these changes
\nand discuss planning strategies to deal with
\ntheir impact with their private banker.<\/p>\n

O’Rourke is senior vice president of Key
\nPrivate Bank in the Capital Region.<\/p>\n

Photo Courtesy KeyBank<\/p>\n","protected":false},"excerpt":{"rendered":"

Fran O’Rourke, senior vice president of Key Private Bank in the Capital Region BY FRAN O’ROURKE Since the American Taxpayer Relief Act was enacted in 2012, the tax burden for affluent Americans–in many cases also business owners–has increased significantly….<\/p>\n","protected":false},"author":88,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[67,84,133],"yoast_head":"\r\nBusiness Report: Year-End Wealth Planning Ideas - Glens Falls Business Journal<\/title>\r\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\r\n<link rel=\"canonical\" href=\"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2014\/11\/business-report-year-end-wealth-planning-ideas\/\" \/>\r\n<meta property=\"og:locale\" content=\"en_US\" \/>\r\n<meta property=\"og:type\" content=\"article\" \/>\r\n<meta property=\"og:title\" content=\"Business Report: Year-End Wealth Planning Ideas - 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