In uncertain times, proactive tax planning can help you preserve your financial well-being
Ongoing changes in tax laws, an unpredictable economy and uncertainty about the future have made minimizing taxes more difficult than ever. This is especially true for investments, because the 15% rate on qualified dividends and long-term capital gains is set to expire at the end of the year — but could be extended. To complicate matters, some new tax breaks have gone into effect this year, but only on a temporary basis. Also, income and estate tax rates are scheduled to go up in 2011 if Congress doesn’t act.
In this environment, you may need to create plans for multiple scenarios and be ready to move quickly as developments unfold. To this end, we are pleased to offer this overview of various tax-saving strategies you might employ. Of course, there are many others we don’t have room to cover here. So please check with your tax advisor to see which are best for you.
Content and Excerpt –
Year-to-Date Review [Page 2] – The top regular income tax rate on ordinary income (salary, business income, interest and more) for 2010 remains at 35%. The top AMT rate is only 28%, but it typically applies to a higher taxable income base. So it can result in unwelcome tax surprises if you plan only for regular income taxes. Also, income-based phaseouts and other limits can increase your marginal rate for regular-tax or AMT purposes.
Executive Compensation [Page 6] – Many executives are compensated by more than just salary and bonuses: They also receive stock options, restricted stock or nonqualified deferred compensation (NQDC). Careful planning for these more complex forms of compensation is critical to avoid unnecessary tax liability.
Investing [Page 8] – Tax treatment of investments can vary dramatically based on several factors — including type of investment, type of income it produces, how long it’s been held and whether any special limitations or breaks apply. Consequently, planning for investments has always been complicated. But this year, the level of complexity is particularly high because of uncertainty about what might happen with tax rates in 2011. So before you make any investment decisions, consider the potential tax consequences
under multiple scenarios.
Real Estate [Page 12] – Although the real estate market is a lot less rosy than it was a few years ago, real estate can still be a valuable investment — whether it’s your home or vacation home or a rental or investment property. Property ownership also can offer significant tax savings, as long as you take advantage of all the breaks available to you. But watch out for the limitations as well.
Business Ownership [Page 14] – For most business owners, their business is one of their bigger investments — or even their biggest. If you’re among them, special planning is required to ensure your personal financial security. After all, with your business making up a large portion of your portfolio, it may lack both diversity and liquidity.
Charitable Giving [Page 16] – Donations to qualified charities are generally fully deductible. So not only can they provide much-needed support to causes you care about, but they also can be a powerful tax-saving tool. To ensure your gifts do as much as possible for both your favorite charities and your tax bill, discuss with your tax advisor which assets to give and the best ways to give them.
Family & Education [Page 18] – It’s the hope of parents everywhere that their children grow up to be financially secure. The keys to achieving that goal are trifold: 1) teaching children from an early age the value of earning and saving money, 2) ensuring they have the financial resources needed to obtain the best quality education possible, and 3) making tax planning a family affair.
Retirement [Page 20] – For higher-income taxpayers, the contribution limits on most retirement plans may make them seem like more trouble than they’re worth. After all, the plans are subject to a variety of rules, and investment choices can be limited. Yet those in the top tax brackets also have the most tax savings to gain from such plans. The key is to make the most of the opportunities the plans offer and avoid their pitfalls.
Estate Planning [Page 22] – A one-year repeal of the estate and generation-skipping transfer (GST) taxes went into effect Jan. 1, but these taxes are scheduled to return in 2011 — at higher levels than in 2009. As of this writing, the repeal is still in effect, but Congress is expected to make estate tax law changes. This all adds up to much uncertainty and many planning challenges.
Tax Rates [Page 24] – A chart consisting 2009 individual income tax rate schedules.