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CBIZ & MHM Executive Education Series™
Individual Year End Tax Planning Tips for 2015 and Beyond Naomi Ganoe and David Levi November 5 and December 2, 2015
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About Us
• Together, CBIZ & MHM are a Top Ten accounting provider • Offices in most major markets • Tax, audit and attest* and advisory services • Over 2,900 professionals nationwide
A member of Kreston International A global network of independent accounting firms
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Before We Get Started…
• To view this webinar in full screen mode, click on view options in the upper right hand corner.
• Click the Support tab for technical assistance.
• If you have a question during the presentation, please use the Q&A feature at the bottom of your screen.
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CPE Credit
This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webinar. External participants will receive their CPE certificate via email immediately following the webinar.
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Disclaimer
The information in this Executive Education Series course is a brief summary and may not include all
the details relevant to your situation.
Please contact your service provider to further discuss the impact on your business.
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Naomi is a director with CBIZ and has 17 years experience providing
advisory services to individuals and closely held businesses on estate,
fiduciary, gift, business and personal tax planning matters. She is a
trusted advisor to CEOs and high net worth individuals. She is an active
member of CBIZ's Private Client Service technical community and
presenter at the CBIZ National Level Training.
330.668.6500 • [email protected] Naomi D. Ganoe, CPA
Director
Presenters
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David is based in our Minneapolis, MN office and specializes in providing
services to companies in the financial service, law, hospitality, and their
owners, as well as tax and estate planning to individuals. David joined
the organization over 30 years ago.
612.376-1208 • [email protected]
David Levi, CPA, PFS Senior Managing Director
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Agenda
Top Year End Income Tax Reduction Ideas
02
01
03
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Top Estate and Gift Tax Planning Ideas
Navigating the AMT
Reduce Net Investment Income Tax
05 Top Tax Provisions that expired in 2014
06 Questions
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INDIVIDUAL YEAR END TAX PLANNING TIPS FOR 2015 AND BEYOND
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Tax strategies that consider your income tax liabilities and your retirement and estate planning opportunities
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Top Year End Income Tax Reduction Ideas
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2015 Federal Tax Rates:
Top Marginal Federal Income Tax Rates
Pre-2013 Today % Change
Qualified Dividends
15%
23.8% 59%
Long-Term Capital Gains
15 23.8 59
Taxable Interest 35 43.4 24
Earned Income (including OASDI and Medicare)
40.65 48.15
18
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Challenges You are Facing Today:
• Higher and More Progressive Tax Rates • Longer Time Horizons • Lower Expected Returns
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Tax Savings Considerations
• Harvest capital gains to offset recognized capital losses (consider end-of-year mutual fund capital gain dividends)
• Harvest capital losses to offset recognized capital gains (consider wash sale rules)
• Transfer mutual funds to children prior to December dividend record date (consider kiddie tax, gift tax)
• Maximize 401(k) or SEP contributions • Pay 4th quarter state estimated tax payments and
2015 real estate taxes by Dec. 31 (if not in AMT)
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Tax Savings Considerations
• Pay January mortgage by Dec. 31 • Make charitable donations, especially appreciated
stock • Bunch miscellaneous itemized deductions to exceed
2% AGI floor (if not in AMT) • Bunch medical deductions to exceed 7.5%/10% floor • Review withholdings, especially if subject to 0.9%
Medicare tax on earned income
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People are Living Longer
65
70
75
80
85
90
95
100
105
Man Woman
HNW - Top 25%Today - Top 25%Today1960
Average Life Expectancy for a 65 Year Old
Source: Social Security Administration, Society of Actuaries, and M Financial Group
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Key Questions
Core Capital: • Are your core assets sufficient to support your
lifestyle? • Can Income Tax Deferral help you meet your
spending goals? • Opportunity to reserve more for Long-Term
Care? Surplus Capital:
• How much will stay in estate without estate tax exposure?
• What are the income tax characteristics of capital earmarked for wealth transfer?
• What are the income tax consequences to the beneficiary upon liquidation?
• Lifestyle Spending
• Personal Reserve
• Extra Spending
• Children and
Grandchildren
• Charity
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Wealth Considerations:
• Financial Goals • Liquid Assets • Illiquid Assets • Spending Requirements • Risk Tolerance • Tax Rates • Time Horizon
• Retirement Date • Future Tax Domicile • Pension Alternatives • Asset Allocation
Personal Profile: Personal Decisions:
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Retirement Tax Deferral
• In order to secure your retirement, you may need to increase your pre-tax savings rate late in your career to make up for earlier years inefficiencies
• Increasing tax deferral through a cash balance or similar plan can significantly increase your savings rate
• State income tax differentials can have a dramatic effect on retirement security
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Other Planning Opportunities
• Private Investments – are they worthless? • Section 1244 rules
• Max out cafeteria plan election • Wages to your children under 18 – fund retirement • Contributions to Roth IRA or Conversion • Contribution to non-deductible IRA and then Convert
to Roth • State Income Tax considerations:
• State of Residency • Non Resident Tax consequences • Consequence of Investments
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Top Estate and Gift Tax Planning Ideas
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Estate and Gift Taxes
Maximum Gift/Estate Tax Rates 40%
Lifetime Gift/Estate Exclusion (2015) $5,430,000
Annual Gift Exclusion (2015) $14,000
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Estate and Gift Considerations
• Gift directly to educational/medical institutions – are not gifts for gift tax purposes
• Gift annual exclusion amount each year ($14,000 per person for 2015)
• Split gifts with spouse to maximize annual exclusion/lifetime exemption
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Estate and Gift Considerations
• Gift assets with high appreciation potential • Use a grantor retained annuity trust (GRAT) or sale to
intentionally defective grantor trust to remove appreciation from estate
• Use a charitable lead trust to remove appreciation from the estate
• Be aware of potential elimination of the ability to use discounts for Family Limited Partnerships as part of your estate and gift plan
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Estate Planning in the Current Environment
• Stability of estate transfer tax laws • Small percentage of population subject to transfer tax • Cannot ignore GST tax • Fear of estate tax uncertainty is no longer driving
clients to estate planners • Increased importance of income tax issues • Traditional credit shelter trust/marital trust needed? • Portability approach has become more predominant • Planning is more difficult for planners
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Estate Planning in the Current Environment
• Transfer planning still important for wealthy families • Be careful before making lifetime gifts of low basis
assets • Grantor trust planning still advantageous • Undoing prior planning strategies • Basis adjustment planning • Trust planning • Estate and trust distribution planning • State estate taxes
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Decanting Trusts : Common Uses
• Correct drafting mistakes or clarify ambiguities • Segregate trustee duties, appoint trust protector • Combine trusts for efficiency • Divide “pot trusts” for beneficiaries divergent needs • Change investment language to provide flexibility • Change situs of trust • Add spendthrift language for creditor protection • Adapt to changed circumstances of beneficiary:
substance abuse, divorce, delay distributions
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Digital Assets:
• Personal Assets: ITunes, memories, pictures, other treasures
• Financial Assets: Bank accounts, brokerage accounts • Business Assets: Customer list, documents, files • Social Assets: Facebook account, other social media
accounts, email accounts
• Need to inventory these accounts, list of passwords to appropriate person
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Navigating the AMT
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Top Expenses NOT Deductible for AMT
• State and local income taxes • Real estate taxes • Personal property taxes • Interest on home equity loan (not used to improve
residence) • Investment expenses • Unreimbursed employee business expenses • Other 2% miscellaneous itemized deductions
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Top Ideas to Reduce Net Investment Income Tax (NIIT)
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Net Investment Income Tax
Rate 3.8% x lesser of:
Net Investment Income, or MAGI in excess of threshold
MAGI Threshold – Single Taxpayer $200,000
MAGI Threshold – Married Filing Joint $250,000
Included in Net Investment Income Interest and Dividends Capital Gains Annuity Distributions Rents and Royalties Income from Passive Activity
NOT Included in Net Investment Income Salary and Wages Self-Employment Income Distributions - qualified retirement plans Gains on sale of active interests Income excluded from federal income
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Net Investment Income Tax Considerations
• Fund a charitable remainder trust with appreciated securities to reduce or avoid NIIT on recognized gains, and spread out investment income to lower income years
• Group passive activities that comprise an appropriate economic unit to qualify them as non-passive
• If current investments generate passive income, consider new investments that generate passive losses
• If you loaned money to your C Corp, then consider reducing interest rate and increase wages (3.8 to .9)
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Net Investment Income Tax Considerations
• Shift investments to tax-exempt bonds, deferred annuities, insurance products
• Taxpayer’s age 70 ½ or older can donate required minimum distributions from retirement plans (assumes provision is extended for 2015)
• Shift assets to relatives not subject to NIIT (consider gift tax)
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Top Tax Provisions that Expired in 2014*
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• IRA distribution exclusion for amounts donated to charity (taxpayer ages 70 ½ or older)
• State sales tax deduction • Tuition and fees deduction • 50% bonus depreciation • $500,000 equipment expensing election • *Provisions may be extended for 2015
Top Tax Provisions that Expired in 2014*
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• 15 – year depreciation for qualified leasehold, restaurant & retail improvement property
• Research and experimentation credit • 100% exclusion on gain from sale of qualified small
business stock • 5 – year recognition period for built-in gains of S
Corporations • * Provisions may be extended for 2015
Top Tax Provisions that Expired in 2014*
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• Record Keeping • 401K – 2015 and 2016 max $18,000 • 401K catch up – 2015 and 2016 max $6,000 • IRA contribution – 2015 and 2016 max $5,500 • IRA catch up – 2015 and 2016 max $1,000 • Cafeteria Plan election • For 2016 Deductible IRAs will phase-out by income • 2016 Lifetime Exemption (Estate and Gift) is projected
to be $5,450,000 per BNA.
2016 Considerations
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? QUESTIONS
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If You Enjoyed This Webcast…
Upcoming Courses: • 11/10: Maximizing Tax Savings for Closely Held Companies with the IC-DISC Federal Export Tax
Incentive
• 11/11: Revenue Recognition Updates for Manufacturers
• 12/1 & 12/15: Recent Tax Developments Impacting the Construction Industry
• 12/8: Lobbying and Political Activity Guidance for 501(c)(3) Organizations
• 12/10: Revenue Recognition Update for the Technology Industry
Recent Thought Leadership: • A Chance of Clouds: Sales Tax Considerations of Cloud Computing
• Local Deductibility of Management Services Charges
• FASB Updates Business Combination Accounting
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THANK YOU CBIZ & Mayer Hoffman McCann P.C. [email protected]
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