Avoid the Rush; Start Planning for Year End Now

Just because it’s called “year-end” income tax planning doesn’t mean you should wait until November or December to think about ways to save on your 2015 taxes.  In fact, the earlier you start, the more tax dollars you’ll save.  Here are a few ideas to consider while the year is still young:

Make gifts to family members — You can give up to $14,000 gift tax free to anyone you wish.  If the recipient is in a lower tax bracket, income earned on the gift property will be shifted from your higher bracket. Keep the kiddie tax in mind, however.

Contribute as much as possible to IRAs, 401(k)s — You can make a 2015 IRA contribution of up to $5,500 ($6,500 for those ages 50 and older) anytime from January 1, 2015, to April 15, 2016.  The earlier you contribute, the longer your money has to grow tax-deferred.  If you participate in a 401(k), give up to the maximum ($18,000, plus an additional $6,000 for those ages 50 and older).

Consider a charitable gift that pays you income — You can secure an income tax charitable deduction for 2015 by making a gift that provides you income for the rest of your life, or the lives of you and another.  A charitable remainder trust or charitable gift annuity may even provide you with tax-free or favorably taxed income.

Bring Your Living Trust to Life

Living trusts have a variety of advantages:

  • They allow for faster distribution of estate assets;
  • They allow for asset management in the event of disability;
  • They eliminate the need for a separate probate proceeding for out-of-state real property;
  • They provide greater privacy;
  • They reduce probate fees.

But a living trust can’t do any of these things if you don’t fund it properly.  The attorney who drafts your living trust can help transfer title of your assets to the trust, but it’s also important that newly acquired assets are properly titled.  What should be in your living trust?

Real estate — Your principal residence, along with any farmland, vacation property or rental real estate can be held in the trust.

Investments — The name on your brokerage account can be changed to the living trust.  Simply ask the broker for the necessary forms.  Contact your bank about changing the ownership of checking or savings accounts.

Insurance — Your living trust can be named the beneficiary and owner of life insurance policies.  If your home, vacation property or vehicles are held in your living trust, insurance on these assets should be held by the trust also.

Business interests — Your interests in C corporations, S corporations, partnerships and sole proprietorships can be transferred to your living trust.

Charitable provisions — Your living trust can provide for transfers to charity during your lifetime, with the income tax deduction available on your personal income tax return.  You can also arrange gifts at death, including some that provide lifetime income to family members.

The Benefits of Nepotism

Hiring children and grandchildren in the family business is often a first step toward passing ownership to succeeding generations.  But there are also tax advantages to putting relatives on the payroll:

  • The salary paid to a child is earned income and is not subject to the kiddie tax that applies to the investment income in excess of $2,100 for children under age 19 (age 24 if full-time college students).
  • A family member can be added to the company’s 401(k).
  • A child may contribute to an IRA, up to the lesser of $5,500 or 100% of earned income.  Parents or grandparents can encourage savings by offering to “replace” earnings put in an IRA by the child.
  • Income paid by parents to a child under age 18 is not subject to Social Security withholding.

The salary paid to family members must be reasonable in light of the work performed.

Never Too Old to Learn New Tricks or Save Taxes

Recent high school graduates aren’t the only ones heading off to college in a few months.  Even those who already have a few high school reunions under their belts can take advantage of the Lifetime Learning Credit to help with their own qualified education expenses or those of a spouse or child.  The maximum $2,000 credit (20% of up to $10,000) applies to tuition and related expenses for either undergraduate or graduate-level courses.  The courses must be part of a degree program or designed to acquire or improve job skills.

The credit phases out for some higher income taxpayers, starting at $55,000 for single filers and $110,000 for joint filers. 


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The materials contained on this website are intended only to show some ways by which you can make a charitable gift or bequest and thereby minimize federal tax liabilities, as authorized by the Internal Revenue Code. All examples are of a general nature only and should not be applied to your specific situation without first consulting your attorney or other advisers.