RISMEDIA, December 6, 2010—Year-end tax planning should be a priority as 2010 draws to a close, according to New York tax and asset protection attorney Ken Rubinstein of Rubinstein & Rubinstein. Gift giving is an easy, tax-efficient way to reduce one’s taxable estate. The amount that an individual may gift to another individual, without tax consequences, is now $13,000. Gifting is an effective strategy to utilize in reducing estate tax liability. For example, if a husband and wife each gift $13,000 to three children, the value of the couple’s estate is decreased by $78,000. In addition, a unified lifetime credit provides an opportunity to avoid gift taxes and make one or more gifts equal in value to $1,000,000 (total value for all gifts). Through the use of limited partnerships and LLCs, these gifts may be leveraged to provide even greater reductions of your taxable estate.
“Further, in the current recessionary economy, now is the time to consider gifting assets that are presently at abnormally low values. The severe decline in the stock and real estate markets has created further built-in discounts for many assets. When the economy rebounds, these assets will begin to increase in value, and that future appreciation will occur outside your estate,” Rubinstein said.
Higher income and capital gains taxes are expected in 2011 and Congress may also amend the tax laws to eliminate some favorable tax planning strategies. Therefore, it is wise to engage in tax planning now, in order to have the benefit of “grandfathering” current beneficial tax strategies before changes in the tax law.
Steps that taxpayers should consider now for effective tax minimization include:
1. Sell appreciated property before loss of capital gains treatment and avoid tax via Charitable Remainder Trusts and international tax planning strategies (e.g. tax advantaged foreign annuities and foreign private placement life insurance).
2. Convert 401(k)s to Charitable Remainder Unitrust IRAs before the government taxes 401(k)s.
3. Consider taking income in 2010, rather than deferring income to 2011 with its likely higher tax rates. As a corollary, clients may wish to defer losses to 2011 to offset expected 2011 income at higher tax rates.
4. Engage in income tax planning via tax-compliant strategies that take advantage of favorable reciprocal tax treaties, before the new tax increases.
5. Consider a Dynasty Trust. Such a trust allows the preservation of assets for one’s immediate and remote descendants, along with offering asset protection from creditors, as well as delay of the estate tax bite for many generations.
6. Consider a Charitable Remainder Trust. One of the uncertainties facing taxation is how much will capital gains tax increase? Contributing appreciated assets, such as stock, family businesses and real estate to a Charitable Remainder Trust during 2010 is a good way to avoid capital gains tax.
7. It is also possible to minimize the tax on appreciated assets by exchanging such assets for a foreign annuity policy. The exchange of assets for an annuity policy is neither taxable nor reportable (at least until 2012). Further, capital gains within the annuity policy would not be taxable.
“The current state of the economy, the election of a new Congress, new offshore reporting requirements, as well as other recent changes will make 2011 a pivotal year for taxpayers,” Rubinstein said. “More tax audits and IRS scrutiny mean that, in addition to raising taxes, the government is also more aggressively enforcing tax laws, tightening or closing loopholes and pursuing tax evaders. The IRS is stepping up its investigations of possible tax abuse and tax evasion, pursuing improper ‘tax shelters’ and other abusive transactions, and increasing audits and tax investigations.” Clients should take a proactive position to avoid negative tax audits and higher taxes.
For more information, visit www.assetlawyer.com.