#TCJA

This white paper discusses tax planning from a federal estate and gift tax perspective for 2022 and many of the techniques discussed could reduce your overall income tax burden. *

In the white paper we discuss:

• Making gifts to children and grandchildren while incurring little or no gift tax;
• Avoiding gift tax reporting by making direct tuition payments for any individual;
• Excluding from gift taxes all payments you make directly to medical providers on behalf of another individual (subject to limitations);
• Superfunding a 529 college savings plan;
• Charitable gifts; and
• Other advanced planning techniques. **

Updating your tax strategy now — before the current Tax Cuts and Jobs Act of 2017 (the “TCJA”) rules expire — could lower the amount of taxes you’ll pay for LIFE. Please contact us and we will share more details.

* You should consult your own tax, legal and financial advisers about your individual circumstances and
before engaging in any transaction. The ability of a taxpayer to make tax-free transfers is subject to a variety of limitations depending on the donor’s specific tax situation.

**Although the Tax Cuts and Jobs Act of 2017 (the “TCJA”) made significant changes to our tax code, the transfer tax system remained relatively unchanged. The most notable change in the TCJA was the doubling of the estate and gift tax exclusion amount and the generation skipping transfer (“GST”) tax exemption amount. The TCJA also made numerous changes that may impact certain family businesses and private foundations.

Prepared by: Focus Fiduciary Solutions, LLC (“FFS”). FFS is a corporate trustee and estate administration solution for Focus partner firms and their clients.  BFSG is part of the Focus Financial Partners partnership. 

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

With potential tax changes on the horizon, funding a 529 college plan deserves careful consideration. 529 college plans allow an individual to donate up to $15,000 per year for each beneficiary ($30,000 per year for married couples). With the potential increase in income taxes and capital gains taxes, 529 plans could be favored since invested funds are free of both income and capital gains taxes as long as those funds are used for qualified education expenses for the beneficiary. With the passage of the Tax Cuts & Jobs Act of 2017 (TCJA), you can now withdraw up to $10,000 per year to pay for private primary or secondary school tuition (*withdrawals limited to tuition only).

High net worth individuals or those who are experiencing a particularly lucrative year may consider superfunding their 529 plan(s) by making contributions using five-year gift averaging. To read more about this strategy read our prior blog post here.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

By:  Paul Horn, CFP®, CPWA®, Senior Financial Planner

We have seen recent legislation pass in California called Assembly Bill 150 (AB 150) that will provide a way for some business owners to be able to get around the $10,000  cap on the itemized deduction of state and local taxes (SALT) on federal tax returns. Until the Tax Cuts and Jobs Act (TCJA) passed in 2018, individuals were able to deduct all state and local taxes (SALT). Once the TCJA was passed there is now a cap of $10,000 per year and this cap hits many individuals living in California (CA) where home values and local taxes are large.

Understanding AB 150

The legislation passed for tax years 2021 – 2025, will allow business owners of qualified pass-through entities (S-Corporations and LLCs) to elect to pay a 9.3% tax on qualified net income at the entity level. The business owner is then eligible for a credit against their individual California income tax in an amount equal to their pro rata share of the elective tax paid by the entity (See IRS Notice 2020-75). As a result, you may indirectly increase your annual state tax deduction on your personal income tax return, in excess of the $10,000 SALT deduction limitation.

How To Take Advantage of AB 150

For business owners of S-Corporation or LLC, you will want to discuss this with us and your tax advisor to make sure that it makes sense. The irrevocable election is made on an annual basis. If your business is a sole proprietor this would be a good time to review and see if it makes sense to convert to an LLC or S-Corporation this year.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.