We have been busy the last few weeks helping clients keep more of what they earn and transfer it efficiently to the succeeding generations. This week we discuss some tips to boost wealth.
Bracket management. The basic idea is simple—manage income across annual tax brackets to smooth out income, avoiding tax spikes from inopportune realization of gains. Income smoothing strategies involve (1) reducing taxable income in high-income years by maximizing deductions and shifting income to lower-income years; and (2) increasing income in low-income years by deferring deductions and increasing taxable income to fill up the lower tax brackets. The power of tax-deferral also is impressively utilized to manage distributions from retirement plans. An AICPA publication provides more detail.
Year-end planning with donor-advised funds. Now may be a good time to consider opening a charitable-gift (or donor-advised) fund—or add to one that already exists. Appreciated stock and stock funds are attractive candidates for donations. The accounts offer charitably-minded investors an easy, low-cost and tax-favored way to manage their giving—and even to maximize it. Charitable-gift funds enable investors to earmark funds for gifts and get an immediate tax deduction, while allowing them to postpone making decisions about specific recipients. For people who are charitably inclined, the advantages of the donor-advised funds boil down to their ease of use, especially in capturing tax benefits through smart tax planning.
Tax-free distributions from individual retirement plans. The House on Wednesday approved a one-year extension of tax breaks that expired at the end of last year, and the bill will likely face an up-or-down vote in the Senate in the coming days. Some of the extenders include the extension of tax-free distributions from individual retirement plans for charitable purposes of individuals at least 70 ½ years old.
Annual exclusion gifts. You may give $14,000 tax-free to as many recipients as you like. For many upper-income Americans, this can be a simple, tax-efficient and generally hassle-free way to transfer wealth to anyone they choose.
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J. Mark Nickell & Co.
Disclosure – The articles mentioned in This Week with J. Mark Nickell & Co. are for information and educational purposes only. They represent a sample of the numerous articles that the firm reads each week to stay current on financial and economic topics. The articles are linked to websites separate from the J. Mark Nickell & Co. website. The opinions expressed in these articles are the opinions of the author and not J. Mark Nickell & Co. This is not an offer to buy or sell any security. J. Mark Nickell & Co. is under no obligation to update any of the information in these articles. We cannot attest to the accuracy of the data in the articles.
