Some Last Minute Planning Thoughts As You Celebrate The Holidays
By Rob Wrubel, CFP®, AIF®
Thanksgiving has come and gone and we are in the homestretch for the end of the year. Christmas music fills the shopping centers and the radio stations. The Colorado weather has turned to winter with freezing temperatures and some snow and we wait for more. For many of us, it means time with family, gift exchanges, celebrations and maybe even a little bit of reflection.
This is a busy time of year for us as we assist families and companies with investments, wealth management and advice. In addition to the end of year celebrations, there are a number of planning issues that must be done before December 31st to count for the year.
Do you plan to make a gift to a family member this year? Gifts can take many shapes and look different depending on the reason that the gift is being made.
Families with business interests often look to gift shares in the family business to related family members. The purposes may vary. Business interests that pay dividends may be gifted to transfer income within the family and lower the overall tax rates paid by a family. Younger members with lower incomes will likely pay less on tax than the older member running the business. It could be a way to transfer ownership over time to avoid estate taxes, as well.
Families seeking to transfer wealth from one generation to the next often use annual gifting to fund wealth transfer trusts (that may own life insurance, cash, stocks, business interests, real estate or other assets). This gifting must be done on a calendar basis. The gift can be up to $13,000 in 2011 without the need to pay any gift tax. Families use this technique to reduce taxable estates and create assets outside of the estate than can be transferred to the next generation or generations. The current tax code actually allows for an individual to transfer up to $5,000,000 without any estate taxes and some families are looking to use significant gifts this year or next to transfer wealth without the need to pay estate taxes on the transfer.
The last few years have been difficult for many people with the rise in unemployment and the increase in foreclosures. Individuals can make outright gifts to other people to help them make mortgage payments or to assist with other expenses of living. Again, the $13,000 limit applies when making gifts without the need to file any special tax forms or pay gift taxes. Couples can give twice the amount to a family member in need. The gifting limit is $13,000 from any one person to any other person. A person could give $13,000 to as many individuals as they wish and a person can receive $13,000 from as many people as wish to give.
Gifts can also be used to fund education accounts, like 529 plans. The $13,000 per year applies here as well. A 529 plan can accept up to five years of gifting at once without the need to pay gift tax.
Retirement Plan Funding
Certain retirement plans must be funded during the calendar year. Individual contributions to business retirement plans must be completed before the end of the year. You may want to adjust your last month’s income and savings contributions, especially if you expect a bonus or need to improve your overall tax planning.
Many of our clients are professionals or entrepreneurs in charge of their own retirement plans. Some of these plans must be set up before year end (and some can no longer be set up for this year) to be able to make 2011 contributions. Many of our clients have reported strong years. Take some time this week to meet with us and your accountant to see if there is an opportunity to reduce taxes and increase savings through the use of the right type of a retirement plan.
Typically, individual retirement accounts and SEP IRAs can be funded at some point during the next year to reduce taxes this year. The rules governing these plans differ, so make sure to consult with your tax advisor and us when looking to make contributions.
Many of our clients seek to improve their communities with some form of charitable giving. Volunteer work counts towards making our communities better places to live but the hours of work do not have any taxable impact for you.
Gifts of cash, stock, real estate and other assets must be made by the end of the year to count towards reducing taxes in 2011. We like to see coordination between you, your tax advisor, attorney and us when making donations that could have a significant impact. Some forms of charitable giving can increase your current income while leaving a remainder for a charity or charities of choice.
Simple gifts that most of us do can both improve our tax picture and support our favorite causes. Many of you write checks throughout the year to all kinds of agencies and religious groups. Save the letter you received from the organization to make sure you can support your charitable deduction.
So often we find that the people who spend a small amount of time on financial planning issues free up more time and better time to spend with their families, their hobbies and their causes. The few hours a year spent with us and the other members of the professional team reduces the stress and worry that something has been missed.
Enjoy your holidays and time with your friends and family. Happy holidays to you.
Rob Wrubel, CFP® AIF®is a Senior Investment Consultant with Cascade Investment Group, member FINRA & SIPC. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.