Although clients (and even some advisors) tend to think exclusively about fees in the few months leading up to April 15, taxes planning-and reducing clients’ tax exposure-should be on your radar throughout the year. But what areas should you focus on as you look for ways to lessen your clients’ tax bill?
100,000 in investment income. 25,000 of their income shall be at the mercy of this tax. Tip: Be sure you know what happens to be considered net investment income; taxable interest, capital increases, dividends, nonqualified annuity distributions, royalties, and rental income are considering world-wide web investment income. In addition, it includes business income if the taxpayer is an aggressive participant and rental income not gained by a real estate professional.
125,000 for married taxpayers individually filing. It is also applied to self-employment income more than these same threshold amounts. Tip: Consider the Medicare tax when critiquing your client’s current withholdings or estimated payment amounts. Now “completely” patched, the AMT can be a liability for many high-net-worth clients. Tip: Determine if there’s a benefit in shifting AMT-triggering items from an AMT season to a different year where the customer is not likely to be subject to AMT responsibility.
The American Taxpayer Relief Act restored the Pease limitation phaseout for itemized deductions. 311,300 for wedded taxpayers submitting jointly. Your clients’ allowable itemized deductions can be reduced by 3 percent of the total amount exceeding these thresholds, although this decrease will be capped at 80 percent. Individual income tax rates are 10, 15, 25, 33, 35, and 39.6 percent, and the top rate for capital benefits is 20 percent.
But how can you look for ways to avoid spikes in income and determine the best method to spread the reputation of income over future years? Tip: Help your clients with a marginal taxes rate analysis. This involves understanding the difference between your client’s marginal tax rate and his / her effective taxes rate. Here, assess if the investment qualifies for long- or short-term capital gain and be certain to offset short-term benefits with short-term deficits and long-term gains with long-term deficits.
Tip: Keep the wash-sale rule at heart, as this prohibits a tax-deductible reduction on a security if your client repurchases the same or considerably identical resources within 30 days of the sale. For taxpayers making noncharitable gifts, there is no limit to the true number of people who can benefit from a present under this annual exclusion. Tip: State gift and estate tax laws can vary greatly from the Federal provisions and are playing a far more important role in present and estate tax planning.
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Be sure you understand how the state provisions may influence your clients’ planning-and seek advice from with a qualified tax advisor for guidance. Act of 2015 made long term a taxpayer’s ability to make skilled charitable distributions from IRAs. Tip: Excluding the IRA distribution from income will lower AGI and can help high-income clients eliminate or minimize the 3.8-percent online investment income tax and the phaseout of itemized deductions. Roth IRA balances are not subject to required minimum amount distributions as the original owner is alive.
Tip: Converting a traditional IRA to a Roth IRA is practical in years where income may be lower and if your client anticipates an increased tax rate in later years. It’s important to keep alert to various events that affect not only your clients’ personal lives but also their tax returns. Tip: Any changes in personal circumstances should be reviewed on a continuing basis to look for the impact on your client’s tax return. To help your clients stay ahead of the game, cause them to become perform an annual review of their personal and business taxes with you and their tax advisor. Through the use of these tips to help reduce taxes early-and keeping abreast of the latest in tax reform-your clients will see benefits throughout the tax year and steer clear of unneeded scrambling at year’s end.
As the many asset classes experience different development levels, balancing might be required to revert to the initial asset allocation. Rebalancing isn’t always necessary and there may be costs to doing so. Within a taxable account, offering securities you’ve kept for less than a yr will lead to short-term capital gains taxes. Consider dealing with your financial advisor beforehand to avoid unintended effects. For example, shared funds issue their capital benefits distributions in the fourth one-fourth based on the year’s trading. You could see yourself owing capital benefits taxes on those distributions to just purchasing the positioning.
