Tax Planning Basics 

With a new tax law that spans the next decade, it's a good idea to review some tax planning basics. Tax planning generally involves the following six basic tax reduction techniques:

1. Shifting income to years when your tax bracket is lower.
2. Shifting deductions to years which will give you the best tax savings.
3. Splitting income among family members to take advantage of lower tax rates.
4. Deferring the tax liability on gains until some later date.
5. Converting ordinary income into long-term gain to be taxed at a lower rate.
6. Choosing tax-exempt investments.

Before shifting income or tax deductions from one year to another, do an estimate of your current-year tax situation and a projection for at least two future years. Be sure to take the time value of money into consideration in your planning.

Splitting income among family members can be a little tricky. You want to maximize the use of the lower tax brackets with the best overall use of the family funds both now and in the future. The ages of your children and their knowledge of finances will enter into the equation.

There are several techniques for deferring gain until later tax years. You can invest in securities which grow in value but produce little, if any, current taxable income. Another technique is to arrange a tax-deferred exchange of investment or business property for other investment or business property.

Perhaps the most common example of converting ordinary gain (subject to regular tax rates) into long-term gain (taxed at 20% maximum) is holding onto an investment for more than the required 12 months.

Your current and projected tax brackets will be the best indicator of your need to invest in tax-exempt securities.

The new tax law contains many tax planning opportunities. Contact us if you would like assistance finding your best tax-cutting strategies.

Related Information:
       
Ideas and Information About Taxes
        Selecting a Tax Advisor
        Tax Services

© Copyright 2001 Raymond S. Kulzick. All rights reserved. 010601.

This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.

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Copyright © 2001 Kulzick Associates, PA - Last modified: September 13, 2008