2011 Q4 Estate and Gift Tax

2011 Q4 Estate and Gift Tax

 ❖The federal and estate gift tax exemptions are each set at $5 million for 2011 and 2012.  ❖This year, the federal gift tax exclusion is $13,000. Excess gifts have gift tax consequences.  ❖Suppose that Marge Jones, a widow, gives $300,000 to her daughter in 2011. The first $13,000 is covered by the annual exclusion.  ❖The remaining $287,000 reduces Marge’s estate tax exemption.  ❖Assume that Marge dies in 2012 and has made no other gifts over the annual exclusion amount.  ❖In this scenario, Marge’s estate would have an estate tax exemption of $4,713,000: $5,000,000 minus $287,000.    

2011 Q4 Year-End Family Tax Planning

2011 Q4 Year-End Family Tax Planning

When you turn your attention to year-end tax planning, you probably focus on your own situation as a single taxpayer or as a married individual who will file a joint tax return. Broadening your horizons, though, may pay off. If you have relatives in a low tax bracket, some strategies can permit you to take advantage of their low tax rates. The outcome might be lower taxes and more money for you and your loved ones to spend or invest. Coping with the kiddie tax You may believe that shifting income from parent to student is a taxefficient way to build an education fund. You might, for instance, give taxable bonds to your children so they can receive interest in

2011 Q4 Year-End Estate Tax Planning

2011 Q4 Year-End Estate Tax Planning

As mentioned previously in this issue, decedents have a $5 million exemption from the federal estate tax for deaths in 2011 and 2012. Many states also impose tax on estates or estate beneficiaries. Depending on the state, people with a net worth of $1 million or more may leave their heirs with tax to pay. In addition, future legislation might reduce the federal estate tax exemption. As a result, you may want to take some actions by year-end 2011 that can reduce your heirs’ exposure to future estate tax. Embracing the exclusion Do you have more wealth than the amount you’re likely to need for yourself and perhaps for a surviving spouse? If that’s the case, use your annual gift

2011 Q3 | Choosing the Right 401(k)

2011 Q3 | Choosing the Right 401(k)

Many companies offer employees a choice between two 401(k) plans. The version with which you’re probably most familiar As before, you can choose to defer some salary and defer the income tax as well. You’ll also defer the tax on any investment earnings. However, when you withdraw tax-deferred earnings and tax-deferred investment income, you’ll owe income tax. You’ll probably owe a 10% penalty on withdrawals before age 59 1/2, too. Another option you may have is a Roth 401(k). With this account, you’re not deferring income tax, so you’re contributing after-tax dollars. Again, you wont owe tax on any investment income inside the plan. After you’ve had a Roth 401(k) for 5 years and after age 59 1/2, all withdrawals

2011 Q3 | Adjusting for the AMT

2011 Q3 | Adjusting for the AMT

Many taxpayers owe the alternative minimum tax (AMT) rather than the regular income tax. Officially, the AMT has two tax rates: 26% and 28%, depending on your income. The AMT also has an exemption amount that phases out with AMT income over $112,500 (over $150,000 on a joint return). As the AMT exemption phases out, your tax rate actually might be 32.5% or 35%. Thus, some taxpayers who pay the AMT will owe as much as 35 cents in tax for every extra dollar of income they report, as opposed to the “official” 26 or 28 cents on the dollar. The higher the AMT rate, the greater the benefit of deferring tax with a traditional 401 (k).

2011 Q3 | Avoid Higher Medicare Premiums

2011 Q3 | Avoid Higher Medicare Premiums

For several years, upper-income Medicare enrollees have had to pay higher-than-standard premiums for Medicare Part B, which covers doctors’ bills and other outpatient charges. Starting in 2011, those same seniors also owe elevated premiums for Part D, which covers prescription drugs. These added charges use income “cliffs,” meaning that you pay the full amount if you go over the threshold by even $1. Many Medicare enrollees pay $96.40 a month for Part B, and some others pay $110.50 or $115.40 a month. (This depends on when they enrolled in Part B and whether the premium is deducted from their Social Security checks.) However, you will pay much more this year if your modified adjusted gross income (MAGI) exceeds certain levels.