Benjamin Franklin said, “In this world nothing be said to be certain, except death and taxes.” Most of us pay taxes like income tax, sales tax, and capital gains tax. When it comes to estate planning, both death and taxes come into play. Fortunately, we can use strategies for reducing taxes that we owe.
The Internal Revenue Service defines gross income as “all income from whatever source derived … ” and then provides a list of 15 types of gross income. Surprisingly, the list includes things most of us won’t consider income, like “income from discharge of indebtedness.”
Ways To Legally Decrease Your Tax Bill Include:
- Reduce your taxable income by increasing contributions to your retirement accounts.
- Consider moving funds into a Roth 401(k) or IRA account.
- If you are working, check out your employer’s health insurance plans. You may be able to divert pre-tax dollars to a medical reimbursement account or flex healthcare plan.
- You may be eligible for tax deductions like reimbursement of job search costs or tax credits for buying “alternative energy equipment” like solar devices.
- Make charitable donations, but also keep track of any costs you incur while helping charities.
- Enlist the help of financial advisers or CPAs. Make sure your investments and retirement accounts satisfy IRS requirements, keep you out of trouble, and don’t increase your taxes. Timing of contributions and withdrawals can be important.
- If you own a business or are thinking of starting one, the type of business entity you choose may affect your taxes. Ask your attorney about the consequences of your business income. One business entity may provide sizeable tax relief over another.
- Are you self-employed or running a business from home? Talk to your attorney and accountant for advice. Make sure you are taking all deductions possible!
Discuss tax reducing strategies with your estate planning attorney. Federal estate tax may be due on estates worth more than the IRS exemption limit, which is currently a little more than $5 million.
You Can Decrease The Tax Due, If Any, By:
- Reducing the value of your estate through strategic gift-giving and charitable deductions.
- Using a trust that may reduce or defer taxes on your estate.
- Forming a Family Limited Partnership may allow you to pass assets to your beneficiaries while reducing taxes.
No matter what kind of tax strategies you use, do your homework first. Get expert advice to make sure you are using all legal options available to you, while avoiding tactics that may end with an IRS audit.
Make Tax Reduction Part Of Your Estate Plan
To discuss your concerns with an experienced Keystone lawyer, call us at (480) 418-8448 or check out one of our free seminars. We provide estate planning advice for clients throughout Arizona, including Chandler, Gilbert, Sun Lakes, Tempe, Phoenix, Mesa, Scottsdale, and Apache Junction.