Contrary to popular belief, tax planning isn’t something that you just leave for the end of the year and again in April. Though it’s easier to pay your taxes and forget about them until next year, a mid-year review can help to make sure that you’re not overpaying. A mid-year review also allows taxpayers to plan out actions, save more, and eliminate some of the stress that rolls around come tax season. Finding the right strategy for your income tax planning can be a daunting task, which is why it’s important to turn to an expert in taxation. The team at France Law has the legal training and knowledge to protect your assets with sound income taxation strategies that are unique to your case. To help reduce any surprises during tax season and to take advantage of all eligible breaks and credits, experts suggest the following tax-smart strategies for 2016:

Invest in municipal bonds to generate tax-free income:

Municipal bonds are more attractive on a relative basis to those who find themselves subject to the 3.8% surtax and possibly the highest marginal rate (39.6%). The yield an investor would require in a taxable bond investment to equal the yield of a comparable tax-free municipal bond increases for those specific taxpayers.

Utilize strategies to reduce or avoid taxable income:

If you’re a taxpayer contributing to a retirement plan or an IRA, choosing to fund a flexible spending account or deferring compensation income can reduce your adjusted gross income and help prevent you from reaching an income threshold that can result in a higher tax bill. Utilizing other tax deductions such as charitable giving or mortgage interest can also offset income.

Consider Roth IRA/401(k) contributions or conversions:

Utilizing Roth accounts can be an effective way to combat the future tax rates in light of long-term federal budget challenges. Younger investors or those in lower tax brackets can greatly benefit from creating a source of tax-free income in retirement

Asset “location:” Allocate assets by tax status:

Consider placing a larger percentage of your stock holdings outside of retirement accounts and a larger percentage of your fixed-income holdings in retirement accounts. When it comes to stock investments, allocating more of your buy-and-hold or dividend-paying investments to taxable accounts may increase your chance of benefiting from a lower tax rate on applicable dividends and long-term capital gains.

Be mindful of irrevocable trusts and taxes:

Due to the low income threshold which will bring income retained within an irrevocable trust up to the highest marginal tax rates, trustees may benefit from reconsidering investment choices within the trust, such as municipal bonds and life insurance.

Review estate planning documents and strategies:

It’s crucial to plan for an orderly transfer of assets or for unforeseen circumstances. Some strategies include proper beneficiary designations on retirement accounts and insurance contracts, wills, power of attorney, healthcare directives, and revocable trusts.  

Plan for potential state estate taxes:

Most people are well aware of the federal estate tax, but certain residents need to be aware of state estate or inheritance taxes too. Many states are “decoupled” from the federal estate tax system, which is why it’s important to consult a with an attorney on state-specific laws and options.

Evaluate whether to transfer wealth during lifetime or at death:

The unified lifetime exemption amount for gifts and estates allows taxpayers the flexibility of deciding to transfer wealth during life or death. Choosing to transfer assets after death allows individuals the ability to maintain full control of their property while living and the benefit of step-up in cost basis at death.

Consult with an attorney to see if more complex strategies are appropriate:

Especially for those individuals and families with significant wealth who may benefit from more complicated strategies from transferring wealth, it’s critical to consult with an attorney. With increased scrutiny among lawmakers that may prompt restrictions in how these strategies are implemented, it would be prudent to examine these alternatives while they are still an option.

Since personal circumstances vary widely, it is so critical to consult with a qualified tax or legal professional who understands your specific circumstances and goals. At France Law Firm, we’re able to create sound income taxation strategies to protect your assets. Be prepared with the experience and knowledge of our team on your side, contact us today to discuss your options.