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Posts Tagged ‘tax planning

Tax planning tips

Tax planning tips

Last week, I went to a luncheon seminar hosted by Fidelity Charitables, a division of my custodian company Fidelity Investments.

I went there because 30% of my clients are business owners. I know that one-third of them have strong charitable intent, and helping them do well by doing good is part of my responsibility.

Part of the dilemma of successful business owners who have charitable intent is this: They make a lot of money when they are running their business, and especially at the time they sell their business. But they give away their money to the causes they care about usually in retirement when they do not have as much income to write off. Without careful charitable planning, they will end up paying a lot more in taxes and have a lot less to give to charity.

Here comes the rescue plan: Donor Advised Fund (DAF).

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Tax planning tips

[Guest Post By Cal Klausner] Charitable contributions should be timed so as to obtain the maximum tax benefits, either in 2012 or 2013. If a taxpayer plans to make a charitable contribution in 2013, he should consider making it this year instead if speeding up the deduction would produce an overall tax saving, e.g., because the taxpayer will be in a higher marginal tax bracket in 2012 than in 2013.

On the other hand, a taxpayer who expects to be in a higher bracket in 2013 should consider deferring a contribution until that year. This task is more difficult than in prior years because of uncertainty over whether rates will rise next year under the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) sunset.

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[Guest Post by Christopher Guest] There are ways a person could use the two year window provided in the Tax Compromise of 2010 to leverage a person’s gifting opportunities, reducing a person’s taxable estate. One strategy that can be used and would not consume any, or only minimally consume, your lifetime gift tax exemption is the Grantor Retained Annuity Trust, or “GRAT.” A GRAT is a form of irrevocable trust that allows the grantor to take a calculated risk to lower the grantor’s taxable estate.

The grantor transfers specific assets or property into the GRAT. The language in the GRAT stipulates that every year the grantor will receive a fixed payment, i.e. an annuity payment, back from the trust over a fixed number of years. A typically time period for a GRAT is 2 to 5 years. At the end of the term, the remainder beneficiaries get whatever is left. For gift tax purposes, the value of the gift is calculated on day one, when the trust is created and funded, but the gift value is discounted, as discussed below.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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