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Tax

Real Life Planning © Feature

Tax Planning Ideas for High Net Worth Individuals

General tax and estate planning ideas from Golden Gate Advisors available to all taxpayers:

  •  Select the proper form in which to conduct business activities 

  •  Defer income for lower rates coming

  •  Accelerate deductions

  •  Harvest losses

  •  Convert from taxable income to tax-free income

  •  Use Qualified Plans as much as possible Shift income between taxpayers

  •  Convert ordinary income to capital gains

  •  Convert capital losses to ordinary losses

  •  Use tax-free exchanges

  •  Use debt where and when feasible

  •  Estate tax is sometimes called the "volunteer tax" so plan not to volunteer!

  •  Gift $11,000 per person per taxpayer every year to reduce estate taxes

  •  Make Charitable contributions

 

Tax Code Changes:   Current Individual Tax Code updates reflecting the latest

 enacted Federal Tax Code.

 

 

TEN Specific Ideas:

 

1. Establish a Roth IRA and/or 529 Plan for children of high income taxpayers

 

2. Employ your children a salary for work done around the house or for your business. This will enable them to establish retirement plans and be taxed at a lower rate if under 14.

 

3. Make lifetime fractional interest gifts to avoid having a control premium taxed at death

 

4. Consider using a newly formed S corporation to enable installment sales treatment for otherwise non-qualifying property.

 

5. Consider the useful lives of all depreciable assets given rationale set forth in Hospital Corporation of America, 109 TC21 and be more aggressive in depreciation.

 

6. Consider using nonqualified options or a contributory stock plan together with an 83(b) election to have comparable benefits to Incentive Stock Options

 

7. Consider selling mutual fund holdings before year end income is credited to the fund creating capital gains taxes instead of dividend income.

 

8. Shift unearned income to junior family members. First $700 of earnings is tax free, Next $700 is taxed at 15%

 

9. All closely held business entities should be structured as limited liability companies (LLC), S corporations, or limited partnerships.

 

10. All real estate should be owned by an LLC and not by corporations or S corporations.

Certain Records and Documents Should Be Kept Indefinitely:

While most documents and records can be discarded after a prescribed period, some should be kept indefinitely. Keep in mind that there may be individual circumstances that transcend the general rules for keeping or discarding documents. Here are the documents that should be kept indefinitely:

  • Adoption papers
  • Birth certificates
  • Cost of purchasing major assets or investments, and costs of additions thereto
  • Custody agreements
  • Death certificates
  • Deeds to property
  • Divorce papers
  • List of assets (keep current)
  • List of previous employers
  • Loans that have been paid off (canceled notes or other evidence)
  • Marriage certificates
  • Passports
  • Photographic or video record of house and household contents
  • Record of any governmental employment (e.g., armed forces)
  • Income tax returns (supporting documentation may be discarded after six years)
  • Tax forms and supporting records relating to non-deductible IRA contributions
  • Tax forms and supporting records relating to sale of a home

Important Year 2002 and 2003 Tax Updates Good to 2011:

- Dividends paid by corporations and qualified foreign corporations (ADR) to individuals is now taxed at either 5% or 15%.

-  After May 6, 2003, Federal tax law changed so capital gains will now have a reduced tax percentage of 15%.

- Gains from depreciable real estate is taxed at 25%.

-  IRS announced a change for required minimum distributions upon attaining age 70 1/2 effective 2002. ( See Featured Flowchart)   

-  IRS extended Medical Savings Accounts for an additional two years.

-  IRS reinstated installment sale relief for accrual method taxpayers.  

-  Missing or abducted children can continue as a dependent until 18th birthday or official determination of the child's death.

-  In order to use the Teachers Tax Credit, the California State requires records of when teaching started.

-  In 2003, the Section 179 Business Equipment deduction of $24,000 increases to $100,000.

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