Year-End Tax Tips

As 2014 is headed to a close, year-end tax planning will soon take the stage.  Below are a few strategies that may help in producing substantial tax savings:

• Trust Distributions. Tax brackets for trust are more compressed compared to brackets for individuals.  Thus, trustees should consider making discretionary distributions of income to beneficiaries at the end of 2014 to reduce taxes. 
• Harvesting Ordinary Income. This may be considered in order to “fill-up” your marginal tax bracket, which is especially true today with the advent of seven different ordinary income tax brackets. 
• Harvesting Capital Gains. Taxpayers with a lower long-term capital gain bracket in 2014 should consider selling appreciated assets to take advantage of a lower tax rate. 
• Harvesting Capital Losses. If a taxpayer recognized capital gains anytime this year, it might be best to harvest capital losses to offset the gains recognized.
• Charitable Remainder Trusts. Taxpayers planning to make large sales at the end of the year should consider creating a CRAT or CRUT to smooth income. 
• Charitable Lead Trusts. Consider creating a charitable lead trust (CLT) at the end of the year.  With a CLT, payments are made to the charitable beneficiary and at the end of the term any assets remaining in the trust pass to non-charitable remaindermen with favorable gift tax results.
• Roth IRA Conversions. Whether a Roth IRA conversion is favorable for a taxpayer is fact dependent.  There are several ways to reduce the cost and risk associated with conversion.  One way to reduce cost is by staging it over several years to hold down the marginal tax rate applied to the conversion amount. 

See Robert S. Keebler, 2014 Year-End Tax Planning, Blog for Estate Planning Professionals, Nov. 3, 2014. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.