Part 1 in a 2-Part Series about Tax Savings
Now is the time to begin looking at ways to minimize your 2018 income tax bill. This blog post, which is the first of a two-part series, outlines several strategies to consider before the end of the year. Granted, this is a lot of tax talk. But rest assured, we would be happy to walk you through how to determine the best strategy for you in layman’s terms.
First, make sure you consider the “timing” of your deductions, and, if possible, income. Depending on your circumstances, you may want to prepay some expenses for 2019, so you can include them on your 2018 return. These expenses may include:
- Estate estimated tax payments
- Expenses related to your investment real estate or small business
Using Charitable Remainder Trusts to Reduce Income Tax
Some folks understand the use of the term, Charitable Remainder Trusts (CRTs). In short, it is an estate tax reduction technique. Typically, you receive an income stream for years. And then your gift to the trust passes to your most beloved charity. CRTs also effectively reduce income taxes, under the right circumstances.
Aside from taking a limited income tax deduction over five years for the value of the property transferred into a CRT, a CRT can be used to reduce your income tax bill:
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Avoid Large Capital Gains
If you anticipate recognizing a large capital gain on an appreciated asset, such as the sale of your business or valuable stock you purchased years ago, you can transfer the asset into a CRT which then sells it. You will not recognize any capital gain on the sale. In addition, payment of the annual distribution is only taxed when you receive it, which spreads income over a number of years.
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Shift Income to the Next Generation
If you will not need the income from an income-producing asset, you can provide an income stream for your children by transferring the property into a CRT and making your children the current beneficiaries.This shifts the taxable income down to the next generation.
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Plan for Retirement Income.
A Net Income with Makeup Charitable Remainder Trust (NIMCRUT) can be used to invest for tax-deferred growth while you are still working and do not need investment income. After you retire, the CRT assets can be invested to replace your lost income.
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Combine Life Insurance.
A CRT combined with a significant life insurance policy, often owned by a life insurance trust is a dynamic duo. The income stream pays for a life insurance policy. And it reduces taxes. The insurance replaces the value of the asset donated to charity. This strategy is a win/win for all.
To read more ideas for reducing your 2018 tax liability, check back next week, when we conclude this two-part series.
About Skvarna Law
A skilled attorney can assist with your estate plan. Contact us today to learn about your options (909) 608-7671. We operate offices in Glendora and Upland, California. We provide legal services for individuals living in San Bernardino, Los Angeles, Orange and Riverside Counties. This includes the cities of Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Montclair, Pomona, La Verne, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
