Tax Tips to Help Your Clients Save Money
While the end of the tax year is still a few months away, it is not too soon to start thinking about tax-savings opportunities. Read on for some hints on how to help your clients save money. Make sure, however, that you work with a tax advisor because tax rules are extremely complicated and require the proper expertise to implement properly.
Capital improvements
Thanks to 2010 rulemaking by Congress to stimulate the economy, this year could be a good time for clients to make capital improvements on their businesses.
This year, individuals or businesses can write off 100 percent of equipment purchases, depending on the circumstances, says Jeff Katz, partner-in-charge of the Tarrytown, New York, office of WeiserMazars LLP, an accounting and consulting firm.
"If you're a capital intensive business and you have to buy equipment, this is when you want to do it, assuming you qualify under the law," he says.
Capital gains
It's important to look at your portfolio to harvest gains for things you have held for more than one year to take advantage of the 15 percent maximum tax rate. You also should look for opportunities to offset losses.
"People tend to delay the review until December but it's always better to review the portfolio earlier and do some planning," says Edward J. Kohlhepp Sr., president of Kohlhepp Investment Advisors, Ltd., a registered investment advisor in Doylestown, Pa.
Tax loss harvesting
If your client has realized gains and unrealized losses, there might be an opportunity to offset some of the tax hit by doing active tax planning, says Jimmy Lee, managing partner in the Phoenix, Ariz., office of Strategic Wealth Associates. "If you have unrealized losses, you may be able to sell them and replace them with a proxy position for at least 31 days. Then you can repurchase the original shares and still take a tax loss," he says.
Businesses with net operating losses also might consider converting a portion of an IRA to a Roth IRA, he says. When you convert to a Roth, you generate taxable income for that year; however, if you have a net operating loss in your business, you might be able to offset that income. Say, for example, you have a net operating loss of $100k, but an IRA worth $200k. If you convert $100k to a Roth, you will pay no income tax on the conversion. "It's a really cool planning technique," Lee says.
Take advantage of favorable gift tax rules
If you have clients who are looking to take advantage of temporarily higher lifetime gift tax exclusions, 2011 could be a good year to do it.
Here's how: If you are a high-net-worth individual that owns a business or entities that own a lot of real estate, you may be able to leverage your giving and, in reality, give away more than the allowable limit ($5 million for individuals and $10 million for married couples) by giving shares of those entities and taking advantage of minority-owner and lack-of-marketability discounts allowed by the tax code, says Lee of Strategic Wealth Associates.
Charitable giving
There are many ways that clients can lower their taxes through charitable giving such as through donor-advised funding? or foundations.
But here's another helpful tidbit for those over 70-1/2 years old, the required age for taking a minimum distribution from IRAs and retirement plans. In 2011, they are permitted to contribute part or all of that minimum distribution to charity, thereby avoiding the income tax on that distribution, says Kohlhepp of Kohlhepp Investment Advisors.
Miscellaneous things to note
There are, of course, many other ways to help save your clients money on their taxes such as by maximizing 401(k) contributions, helping them set up a qualified plan, taking advantage of energy credits, funding a 529 plan and more. Remember, too, that tax laws are always changing, so it's important to remain current with respect to state and federal laws. Regardless of which avenues you help your clients pursue, make sure your clients have a good tax advisor in place to protect their interests.
