Archive for the ‘Tax Planning’ Category

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Temporary Capital Gains Tax Break Can Help Seniors

Wednesday, February 6th, 2008

Over the next two years, seniors can take advantage of a significant capital gains tax break. From 2008 to 2010, taxpayers in the 10 and 15 percent tax brackets will pay zero percent in capital gains taxes. This means individuals in those tax brackets (the lowest two brackets) will be able to sell real esate, stocks and bonds, and other assets without paying any capital gains taxes. 26 U.S.C. Sec. 1(h);1(d) 1(g) 112.

This temporary tax break can be extremely useful for retirees, semi-retirees, and low-income seniors. Other potential beneficiaries of this zero percent tax include parents, children, and certain U. S. service members. With proper planning these taxpayers can generate income, implement various asset protection and asset management strategies, or satisfy gift and income shifting objectives at no tax cost. 

This capital gains tax cut can significantly benefit the following people:

- Adult children who support low-income parents, or seniors helping out adult children who fall into the 10 or 15 percent tax brackets. Instead of giving cash, you can give stocks and bonds instead, and if the parents or adult children sell the stocks and bonds between 2008 and 2010, they will not pay a capital gains tax on the proceeds.

- Retirees with investments in taxable accounts. Tax-deferred retirement savings plans are not affected by capital gains. But if you are a retiree with stocks or mutual funds in a taxable account, you can sell without incurring a capital gains tax. If you are planning on retiring this year, you may want to sell taxable investments and delay Social Security payments or distributions from a tax-deferred plan.

Be careful. There are some potential downsides to selling off investments, so you need to be sure it is the right step for you. Before you take any action, be sure to consult both an elder law attorney and a tax professional. The proceeds from the sale of the investments will be added to your income, which can have some unintended consequences. For example, it could push you into a higher tax bracket, thereby losing some of the benefit of the zero-percent tax rate. It could also affect eligibility for Medicaid or cause previously non-taxed Social Security benefits to be taxed.

If you would like to discuss estate planning or asset protection planning in light of this new tax break, please give us a call.

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Buffett backs Estate Tax

Monday, December 3rd, 2007

Billionaire Warren Buffett urged Congress to preserve the estate tax, saying that plans to repeal it would benefit a handful of the richest American families and turn the country into a “plutocracy.” Buffett, the chairman of Berkshire Hathaway and the second-richest man in America testified before the Senate Finance Committee on Nov. 14, 2007. He told the panel, which is exploring ways to replace the ever-changing rules of the current estate tax system, that advocates of repeal are “dead wrong” to call the tax a “death tax.”

Buffett said it would be more appropriate to call it a “death present” because heirs get to calculate their capital gains on inherited assets based on the price when they inherited them rather than when the decedent originally bought them.

Buffett noted that so few Americans are subject to the estate tax that “you would have to be at 200 funerals to attend one where the decedent paid the tax.”

Currently, only estates worth more than $2 million are taxed by the federal government. The threshold is scheduled to rise to $3.5 million in 2009. For the year 2010, estates will be entirely free from federal taxation. However, the law that includes this provision expires at the end of 2010. Thus, unless Congress acts in the interim, the estate tax exemption will then revert to $1 million.

Senators on both sides of the aisle agreed that complete repeal of the estate tax will not happen anytime soon. “I think everyone in this room knows we’re not going to repeal the estate tax. It’s not going to happen in the foreseeable future,” said Committee Chairman Max Baucus (D-MT).

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Things to Remember at Tax Time

Monday, April 9th, 2007

April 17th is approaching and it is time to begin crossing T’s and dotting I’s in preparation for paying taxes. As tax time draws near, you want to make sure you file all the proper forms and take all deductions you’re entitled to. The following are several things to keep in mind as you prepare your tax form.

  • Gifts. Did you give away any money this year? The gift tax can be very confusing. If you gave away more than $12,000 in 2006, you will have to file a Form 709, the gift tax return. This does not necessarily mean you will owe taxes on the money, however.  Click here for more information.
  • Medical Expenses. Many types of medical expenses are tax deductible, from hospital stays to hearing aids. To claim the deduction, your medical expenses have to be more than 7.5 percent of your adjusted gross income. In addition, you can only deduct medical expenses you paid during the year, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance. Click here for more information.
  • Parental Exemption. If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to get an exemption (currently $3,200) for him or her. Click here for more information.
  • Long-Term Care Insurance Premiums. Premiums for “qualified” long-term care policies are treated as an unreimbursed medical expense. Long-term care insurance premiums are deductible for the taxpayer, his or her spouse and other dependents. Click here for more information.

Posted in Estate Planning, Long-Term Care Insurance, Tax Planning | Comments Off

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