It seems rather certain that Congress is going to raise income tax rates, capital gains tax rates, and estate and gift tax rates in the near future. This expectation creates certain opportunities. You should consider one or more of the following actions:
- Selling assets to recognize long-term capital gains now in order to take advantage of the current 15% capital gains tax rate.
- Accelerating the recognition of ordinary income (by exercising stock options) in order to take advantage of the current income tax rates.
- Delaying the making of large charitable contributions until income tax rates are raised so that you can receive a larger income tax deduction.
- Converting your IRA to a Roth IRA so that future generations can enjoy your retirement assets free from income taxes.
- Gifting or otherwise transferring assets to trusts for children and grandchildren. Right now is an excellent time to do this since asset values are depressed, there is no generation skipping transfer tax this year, and Congress is considering eliminating minority interest discounts and taking other actions that may curtail your ability to transfer assets to desired beneficiaries in as tax efficient a manner as you can right now.
Of course, everyone’s situation is different and the details of future legislation cannot be predicted with certainty. You are advised to consult with a tax professional regarding the developments summarized above.**
Please do not hesitate to contact me if you have any questions.
** IRS CIRCULAR 230 NOTICE: Any tax advice provided in this communication is not intended or written to be used or relied upon, and it cannot be used, relied upon, or referred to by any taxpayer: (1) for the purpose of avoiding tax penalties that may be imposed by law upon the taxpayer; or (2) in any marketing or promotion of any tax transaction or planning. Any taxpayer should seek advice based on his/her particular circumstances from an independent tax advisor with respect to any federal tax transaction or matter referenced in this communication.