With inflation at a 40-year high and the likelihood of a tax increase in the future, it’s normal to worry about how your taxes and finances will be affected. You’ve accumulated assets during your lifetime. You plan to transfer the wealth to your heirs or perhaps a charity or some other worthy recipient.
Estate tax planning is integral in this process. Without it, unanticipated tax hits can carve away at your estate and seriously disrupt your plans and aspirations. Being diligent about estate tax planning can help manage your future tax liability and maximize the legacy you leave behind. You did not work all your life to see everything go up in tax smoke.
On the high end, federal estate taxes can reach 40%. This means that if you have $1 million over and above the estate tax exemption, you will hand $400,000 over to the IRS and leave $600,000 behind to give away. And that’s not even accounting for any state tax liability.
Under federal estate tax exemption, everyone has an estate or gift tax exemption, sometimes referred to as a basic exclusion amount or unified tax credit. This exemption designates the number of assets you can give away, either throughout your life or after your death, without being subject to federal estate or gift taxes. For 2021, the federal estate tax exemption was $11.7 million per person; in 2022, it is $12.06 million. Married couples can double that amount.
Reducing Capital Gains Tax: A Few Strategies
- Think twice about which tax-advantaged accounts you put money into. For example, 401(k)s, IRAs, 529s, HSAs, and irrevocable trusts provide different tax benefits.
- If you need to liquidate investments within a taxable brokerage account, bear in mind how long you’ve had it. When the position you wish to sell has made a gain, you’ll get hit with capital gains taxes. Positions at least a year old have more favorable long-term capital gains tax rates than short-term capital gains tax rates.
- If you’ve accumulated capital gains for the year, check your taxable account to see if other investment positions might have produced balancing capital losses.
- In addition to harvesting capital losses, investors can harvest their capital gains. This means that investors purposefully await years in which their taxable income is less to realize capital gains on their investments.
Other options to consider:
- Monitoring Mutual Fund Distributions
- Giving Away Appreciated Assets
- Investing in Distressed Communities
Let’s Talk Estate Tax Planning
When it comes to estate planning, these strategic moves are just the tip of the estate planning iceberg. Only a qualified estate tax planner can suggest all the options available. Estate tax planning is a mind-bending task. You need a competent financial pro to guide you through the morass—don’t let taxes take a bite out of your financial future.
The Law Offices of Michael K. Lanning, APLC, will help you build a plan that aligns with your unique needs and objectives for a sound future. Contact us at 310-820-1600 or go to our website to learn more and set up a consultation.
We serve West Los Angeles, Santa Monica, Pacific Palisades, Manhattan Beach, and the surrounding Los Angeles communities.
The Law Offices of Michael K. Lanning, APLC
11777 San Vicente Blvd.
Los Angeles, California, 90049