Income Tax Planning

We have been in the income tax planning business for over 20 years, taking into account deductions and credits Congress has given in the Internal Revenue Code.  After we design the income tax savings plan, we counsel with your income tax preparer so that the proper documentation can be set up to support the deductions and credits.

As income tax plans change each year we meet with the client and suggest inprovements and new satrategies.

We review your income tax returns for the last 3 years and determine the income tax savings plans right for you.

Below is a recent article on income taxes regarding the next years.

Higher Taxes

With rising deficits, taxes will increase.  The Bush tax cuts will expire at the end of this year, and this will push the top rate from 35% to 39.6% and the top rate on capital gains goes from 15% up to 20%.  It is no secret that President Obama and Congress are considering other avenues to raise your taxes.  The Mississippi legislature is also entertaining options to increase taxes.  Even the Mississippi estate tax could rise again from the dead without legislative action.

Let us remember what taxes were like before Ronald Reagan.  The income tax rate for income over $215,400 was 70%.  Income taxes were so high that there was even a maxi tax.  There was even a tax penalty if your IRA was too large. Some taxpayers paid more than 100% on some income. 

So what to do?

Take advantages of the legal ways to reduce your taxes.  Either become more educated or engage a tax professional who can guide you to the deductions and credits. 

Clients have become extremely interested in income tax plans again.  These tax plans can substantially reduce your income tax by taking advantage of the opportunities in the income tax code.  Tax planning is generally done by using a C corporation as that sort of corporation can do the tax-advantaged plans available to the larger publicly traded companies.  While a tax attorney generally sets up the tax plan, a good tax preparer may be the most important part of the team as the rules must be followed so the tax deductions and credits can be supported.

Many clients are considering the conversion of regular IRAs into a Roth IRA. On the conversion, the income tax is paid, but future distributions from the Roth IRA will be tax-free.  Therefore, if income tax rates are rising, less in income taxes will be paid.  However not all people should convert to the Roth IRA and should seek professional help to determine disposition as the calculations are complex.

Some clients are concerned that Congress will go back on its word regarding future tax-free distributions from a Roth IRA. This would indeed be unusual, as Congress usually grandfathers tax positions taken under prior law. 

The current capital gains rate is only 15% at the federal level.  Mississippi also has a 5% tax.  Clients are considering selling highly appreciated stock to take advantage of the low capital gains rates.  Other clients plan to contribute highly appreciated stock to charity and avoid the capital gains tax completely and receive a charitable income tax deduction. Other clients plan to retain highly appreciated assets until death and receive the tax-free step up in basis to completely avoid capital gains tax. 

One of my clients took our advice to the extreme with awesome tax results.  The client borrowed against the appreciation in a securities portfolio avoiding the sale of highly appreciated stock and capital gains, and at his death, all of the capital gains were avoided and the obligation to the bank was deducted from the gross estate for estate tax purposes. 

Walt Dallas, J.D., LL.M. (taxation) is a tax attorney with his offices in Flowood, Mississippi and can be reached at wdallas@corporateplanning123.com or by phone at 601-209-8327.