Year-end tax planning items

By Chord McLaughlin

Pinnacle Insurance & Financial Services


In addition to taking advantage of the current gift tax limits that are set to revert back to $1 million, some additional possibilities to consider are:

  • Contributions to 401(k) plans: Maximum contributions for 2012 is $17,000 with a $5,500 catch up amount for people over age 50.
  • Contributions to individual retirement accounts: Maximum contributions for 2012 is $5,000 with a $1,000 catch up amount for people over age 50.
  • Stock sales: Capital gains rates are scheduled to go up to 20 percent and dividends will be taxed as ordinary income. Not to mention the 3.8 percent Medicare surcharge for high income earners. Now might be a good time to harvest gains and discuss future planning strategies with this money. Concentrated stock position that a client's looking to pass on to heirs? Good source to single pay a life policy to pass the money on more effectively.
  • Income tax rate hikes: Life insurance proceeds payable at death are not subject to income taxes, and the value of the death benefit will increase as tax rates rise. Cash values of a permanent policy may also grow tax deferred and be distributed on a tax deferred basis.
  • Family limited partnerships (FLPs) and limited liability companies (LLCs): Consider making discounted gifts of FLP and LLC interests to trusts or beneficiaries in 2012, especially given possible legislative changes affecting valuation discounts.