Reporter Greg Iacurci tackled year-end tax planning strategies in a recent piece for Investment News. To help identify where the focus of advisers should be, Iacurci spoke with John O. McManus, estate planning attorney and founder of McManus & Associates.
The Investment News story, “Year-end tax planning strategies advisers should be considering,” encourages exploration of end-of-year tax considerations now, with just two months left in 2015. As Iacurci points out, “tax rules are largely unchanged,” so “tactics employed last year will more than likely still be relevant.”
Two important considerations? Tax-loss harvesting and moving assets into trust to avoid gains tax. From the article:
Financial markets haven’t been particularly strong this year, which provides an opportunity for advisers to do tax-loss harvesting, according to John McManus, founder of McManus & Associates.
Tax-loss harvesting involves selling assets that have incurred losses in taxable accounts to offset taxes due to gains elsewhere in the portfolio. It’s a strategy advisers especially turned to following recent bouts of market volatility.
“Given the markets have been flat, for sure you should be picking through your portfolio to find the pieces that have losses and harvest those,” Mr. McManus said.
Through Oct. 29, the S&P 500 index was up 1.5% for the year.
Market performance this year also creates a tax opportunity from an estate-planning standpoint, Mr. McManus added.
For example, there’s a federal tax exemption for assets up to $5.43 million, and anywhere from $675,000 to $5 million at the state level, when transferred upon death. For assets beyond these thresholds, tax rates are 40% and roughly 10%, respectively, Mr. McManus said.
However, clients can essentially accelerate the exemption by establishing a trust during their lifetime, forfeiting the exemption they would have gotten at death.
“This year, since the markets are flat, we’re poised to probably see some [market] growth going forward, so give the assets [to the trust] before the growth takes place,” Mr. McManus said. That way, there wouldn’t be any estate taxes on gains in the trust.
For more important strategies that should be examined to help minimize your tax burden going into the last two months of the year, read the full Investment News story here.
To take advantage of asset preservation opportunities before they expire with the New Year, contact McManus & Associates at 908-898-0100.