Tax Tips

Tax Planning Tip #1

Take Advantage of Tax Break for Worthless Securities

Worthless Securities:  If a security that is a capital asset becomes worthless at any time during the tax year, it is treated as if it were sold on the last day of the tax year in which it became worthless.  A tax loss may be claimed in the year the security becomes worthless.  Keep good records and let us know about the status of all your securities.

Tax Planning Tip #2

Bypass Gift Tax

Grandparents and College Tuition:  There is unlimited gift tax exclusion for amounts paid for another individual’s tuition expenses (not including room, board and books).  Grandparents can bypass the gift tax limits by making tuition payments directly to the educational institution.  Grandparents cannot be reimbursed by their grandchildren in order to keep the exclusion.  This is a great way to help grandchildren without the hassle and expense of filing a gift tax return.

Tax Planning Tip #3

Borrow Instead of Cashing in Funds

Need Cash? Borrowing against your home up to the tax deduction limit of $100,000 may be more preferable to cashing in mutual fund shares that would trigger taxable gains and raise your income. An increase in income can push you into a higher tax bracket resulting in even higher taxes.  Depending on how you use the cash, the interest on a home equity loan may be deductible.

Tax Planning Tip #4

Shelter Losses Through Passive Income

Do you have passive losses that are suspended and carried forward?  Consider decreasing your participation in a profitable business activity to make the income passive so that it can be sheltered by those losses. Taxpayers nearing retirement and working less or taxpayers selling businesses and gradually making an exit can benefit from this type of planning.

These are just a few strategies and tips for working within the tax code to lower your tax liability.  Remember, these tips will not apply to every taxpayer as a customized approach is needed for success.  The key to keeping more of what you make and “paying yourself first” is making the commitment to planning.

At ETS, we will help you make informed, intelligent tax decisions.