The actions you take during the year for your business or personal income can affect what you may owe in taxes. So, it’s important to make the right tax moves throughout the year. There are several factors that can impact your taxes. Here are some of the top ones to consider:
New or Changing Laws
It’s important to note that tax laws have expiration dates and can change. For instance, the new tax law allows for a temporary exemption of $11,200,000 as an inflation adjustment on gift, estate and generation-skipping taxes until 2025 when it’s set to return back to $5,600,000. However, the tax code allows for this exemption to be repealed if necessary. Thus, taking advantage of benefits while they are available is an important strategy to consider to maximize your tax savings.
The assessed value of the property you own can impact your tax liability. This becomes especially true in the case of an estate tax where the fair market value of the property at the time of your death will be used to calculate the gross estate amount rather than what you initially paid.
It’s vital to lower your tax liability so that your beneficiaries can maximize the value of the estate despite high tax valuations of real property or other assets. One way to do this is with an Intentionally Defective Grantor Trusts (IDGT) where assets can be gifted at a value that’s locked down. Family Limited Partnerships are also useful for lowering tax liability while gifting wealth to family members down the generation line. But these tax protections can get complex, especially when dynamics change that can impact tax liability or tax valuation, such as when a partner leaves the partnership of an FLP or the FLP’s business structure.
Gifting Versus Selling Assets
Taxes are typically owed on gifts or the sale of assets over a specified amount. In some cases, it can make more sense to sell versus gifting assets. For instance, selling assets can make more financial sense than gifting an asset when an IDGT is involved. That’s because IDGTs don’t recognize capital gains. The advantage of this is that there will be no tax liability.
Whether devising tax savings strategies for an FLP or figuring out how to structure an IDGT, taxes can get complicated based on your specific situation. However, you can leverage the help of certified tax professionals with expertise in estate planning and tax planning, such as Abercrombie & Associates, PC, assist you with your unique tax planning needs. With proactive tax planning, you can minimize your tax liability while maximizing tax savings.