Financial Planning Opportunities For Individuals and Selected Corporate Tax Matters 2010 and 2011 Considerations - Part 2

Table of Contents 

The Planning Processes and Considerations: The Current Economic and Tax Legislation Environment

Facts and Objectives

Unique Matters To Think About and Why

  • Goals to be attained – specific and varied
  • Balance sheet composition and titling (assets and liabilities, cost and fair values, transferability)
    • Interests in hedge funds or private equity funds
  • Compensation components and forecast (cash, equity, deferrals)
    • Cash, bonus, equity/units/grants
    • Passive income, basis in partnerships, ordinary v. capital gain income
    • Qualified IRC “Section 83(b) Elections” to convert
    • Carried interests – status of federal income tax provisions
  • 2010 equity awards and monetization events and dates, and transferability
  • Review current estate plan (wills, trusts, LLC and LP vehicles)
  • Review tax attributes and exposures
    • Tax rates are increasing in 2011 and beyond
    • State income tax rates are increasing
    • The estate tax will be reinstated in 2011

Legislative Considerations – Current Law 

  • The Current Income Tax Environment: Increased Individual Rates
    • 2010 - top ordinary rate is 35%; long term capital gains and qualified dividends rate is 15%
    • 2011 - top ordinary rate is 39.6%, all dividends included. Long term capital gain rate is 20%; same for post 2011
    • 2013 - Medicare tax increases by .9% in 2013 (earnings over $200,000/$250,000)
      • Additional 3.8% tax on investment income – excluding annuity income and certain distributions
  • No Federal Estate Tax in 2010, Reinstated in 2011 Under Current Law
    • New York Estate Tax is 16% in 2010
    • In 2011, $1 million Federal Exemption with a Top Rate of 55%
    • Legislative Considerations

Economic and Legislative Considerations – Current Law 

  • Gift Tax in 2010 and Prospectively, $1 Million Lifetime Exemption; $13,000 Annual Exclusion ($26,000 per married couple) to unlimited number of donees
  • Lifetime Gifting: Benefits
    • Asset and Income Transfers
    • Transfer Assets With More Certainty Compared to
      • Safeguard Assets
      • Avoid Transfer Tax

Polling Question Have you planned to defer deductions into the 2011 Tax Year?

  • Yes
  • No

Fundamental Ideas To Consider in 2010 

  • Accelerating Income and Deferring Deductions, Generally
    • Review tax attributes and exposures
    • Tax rates are increasing in 2011 and beyond
    • State income tax rates are increasing
    • The estate tax will be reinstated in 2011
  • Alternative Minimum Tax (AMT)
    • 28% on AMTI over $175,000 (joint)
    • Timing of state and local tax payments is the key
    • AMT presents opportunities – income and deduction acceleration and/or deferral
  • Multi-State and City Income Tax Exposure
    • Residency exposure and income tax exposure
    • Including New York, Connecticut, California
    • Days count, sourcing, credits
  • Additional Considerations
    • Asset sales and triggering capital losses
    • Qualified retirement plans
    • Other matters
  • Converting Traditional IRAs to Roth IRAs – No income Limit to Prohibit Conversion
    • Roth IRA distributions are tax free (after five years)
    • Roth IRA balances are not subject to income tax (but are included in a taxable estate; planning opportunities)
  • Transferring Appreciated Assets
    • Outright gifts
    • Intra-family loans
    • Transfer to trusts
    • Charity - generally a 50% deduction for federal income tax; outright, trusts, foundations or donor advised funds
  • The Role of Life Insurance
    • Why insurance is desired? (family needs, estate tax funding, charitable funding)
    • Term, whole, universal, variable: matched to purpose, with premium payment design
    • A trust should own the policy (family bank, estate excluded, creditor protected, protection in a second marriage)
  • Insurance Considerations should include long term disability property and casualty, liability Employer-Sponsored Benefit Plans
  • 401(k), health and life insurance, LTD, additional benefits: Maximize utilization

Next > Wealth Transfer Planning Opportunities: Estate and Gift Tax Fundamentals

The material contained in this presentation is for general information and should not be acted upon without prior professional consultation. 

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