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Tax Planning Opportunities for Business Owners

Unless Congress acts quickly, taxes are going up!  Although major tax law changes are set to take place in 2013, there are some planning opportunities for business owners:

Tax Provisions Which May Impact Planning Opportunities

■       Federal estate tax exemption decreasing and rates rising.

■       Federal gift tax exemption decreasing and rates rising.

■       Federal generation skipping transfer tax exemption decreasing and rate rising.

■       Medicare surtax.

■       Qualified dividend income tax rate rising.

Planning Opportunities        

■       Individuals may make larger gifts of interests in closely held business to trusts established for the primary benefit of their spouse (a SLAT), and subsequently for children and grandchildren, by use of the larger gift and generation skipping transfer tax exemptions currently available under the 2010 Tax Act with or without the use of discounting techniques.

■       Individuals may make larger seed gifts to Intentionally Defective Irrevocable Trusts (IDITs), thereby allowing larger installment sales to IDITs, potentially freezing larger portions of the individual’s estate.

■       Audit previously implemented installment sales to IDITs to determine whether underlying assets are performing as originally projected (cash flows and appreciation), with potential forgiveness of portions of the installment note using the additional gift and GST tax exemptions currently available under the 2010 Tax Act.

■       Review previously implemented split dollar arrangements between an individual’s business and Irrevocable Life Insurance Trusts to determine whether the larger gift and GST tax exemptions currently available under the 2010 Tax Act can be used to reduce the split dollar balances owed to the business and/or be used to fund the remaining premiums on the underlying policies.

■       Individual business owners operating as a C corporation may consider declaring and paying a qualifying dividend to the shareholder/business owner before year end to avail them of the preferential 15% dividend income tax rate and avoid the potential Medicare surtax after 2012 to the extent applicable.

Our tax law firm is helping clients aggressively plan for the future. Contact us for a consultation.

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