With the advent of recent healthcare and tax legislation, all taxpayers, but especially individuals and trusts, must attend to substantially increased tax rates compared to several years ago. The tax attorneys at Carnahan, Evans, Cantwell & Brown can assist you in determining your type of income as well as the applicable tax rate character of the income (ordinary, capital, tax free), your choice of taxpaying entity or entities (i.e., who will ultimately pay the tax), and the timing of the taxable events. Tax planning at the federal, state, and local level can help you save money and defer payments.
Within general rules, you can attempt to split your income among different taxpayers and, if at all possible, delay the taxable event through careful planning and handy techniques. For example, you may wish to look into the following tax planning strategies:
- Like-Kind Exchanges: A like-kind exchange, also known as a 1031 exchange, allows for the disposal of an asset and the acquisition of a replacement asset without the incurrence of tax liability for the sale of the first asset. Like-kind exchanges often involve the exchange of business or real estate investment properties. To be eligible for a like-kind exchange, the assets must be held as an investment or used in a business and they must be “like kind,” i.e., the same type. In addition, the tax laws now permit deferred exchanges where the new property must be identified within 45 days and the purchase closed within 180 days of the sale.
- Retirement Plans: Your choice of retirement plan will have a major impact on when you pay taxes on your savings and how much you pay. For example, withdrawals are tax-free with a Roth IRA, while 401(k)s and traditional IRAs are tax-deferred, so taxes only apply when you take money out. Review the tax advantages of each option when selecting a retirement plan.
- Family Limited Partnerships: A Family Limited Partnership (FLP) provides wealth preservation through asset protection, estate planning, and tax minimization, protecting individuals who have accumulated significant wealth. The partnership is controlled by members of a family and is not taxable, as the owners will report the Family Limited Partnership’s income and deductions on their individual tax returns. This may greatly reduce the family’s taxable income and the taxable Estate and Gift Tax calculations.
Of course these are not the only ways to minimize your income tax liability. For example, consider postponing your income to a later year, which will place you in a lower income tax bracket, and then investing the money you would have used to pay taxes. In addition, be sure to time your deductions carefully, deciding whether you want certain deductions to fall in this tax year or the next. Finally, invest your savings wisely, perhaps using tax-exempt securities like EE bonds or municipal funds.
Whether you are confronting tax challenges from years past or searching for current solutions, the tax attorneys at Carnahan, Evans, Cantwell & Brown can help. We can assist you in sorting through sophisticated tax issues as well as providing the basic knowledge necessary for federal, state, and local income tax planning. To get started, please give us a call at 417-447-4400 or contact us online.