Perhaps it’s because Texas is one of only seven states without an individual income tax, but too many Texans think about taxes only in the 90 days or so that precede April 15th, when Federal returns are due. Some may strategize a bit at the end of the calendar year, but the truth is: Mid-year planning can be important, as well. Here are five income tax strategies for the second half of 2016.
According to some accountants, as much as 50 percent of all annual charitable giving occurs during the last six weeks of the calendar year. That is why the summer months are often lean months for charitable organizations. The needs of the hungry and disadvantaged are constant. If a donor starts earlier in the year with his or her gifts, two things happen: (a) the charity gets supports at the times when it needs it the most, and (b) the donor may find that one’s charitable gifts can be increased without harming the year-end cash flow needs of the family. Whatever you donate, be sure to get a receipt.
Accountants also indicate that the majority of contributions to traditional IRAs are made in March and April, when taxpayers are scurrying to take deductions from the previous year’s income. All well and good, but just as with charities, it’s generally better to make periodic contributions to your retirement accounts throughout the year. Investment advisers say that in the long run, you get more investment “turns” from periodic contributions that from once-a-year deposits to your retirement accounts.
In case you haven’t looked, college expenses are rising at a rate far in excess of ordinary inflation. Have you earmarked part of your saving/giving to your children or grandchildren? A savings plan set up pursuant to IRC § 529 offers tax significant advantages. Earnings on 529 plan investments accumulate tax free, and account withdrawals are not taxed when used for the account beneficiary’s qualified higher education expenses.
Are you an entrepreneur? Are you considering a conference that will be held this summer in a great resort? Remember that there is nothing wrong with extending the trip a few days to have some fun. The spouse and kids can have some fun, as well. Your travel expenses can be written off for business (although not those of your family companions). Of course, only your business-related expenses are deductible, but careful planning and hanging on to your receipts can really pay off in tax savings. You’ll come off as a family hero, as well.
This tip is a bit more nebulous. For those investments held outside of tax-favored accounts, there might be steps that you can take to lessen the impact of taxes on your investment gains and earnings. Everyone’s situation is a bit different, but if some of your assets have appreciated, it may be that you should reshuffle things a bit so as to hang on to the gains longer than a year (simultaneously selling some losers) in order to take advantage of the lower tax rate on long-term capital gains. Owning dividend-paying stocks also might allow you to keep more of your earnings since, in most cases, qualified dividends are currently taxed at the long-term capital gains rates. Reshuffling things into a long-term trust arrangement might also be in order. An experienced attorney could prove valuable in coordinating this kind of strategy.
When many Texas residents think “taxes,” they think CPAs. And that is all well and good. But there is no substitute for an experienced transactional attorney, who can help you with an estate plan, a current (or future) income strategy, and coordinated advice on how to accomplish your overall goals. It may be that an inter vivos trust should be considered. Other tax-deferral strategies can be coordinated.
The attorneys at Romano & Sumner have more than 20 years of combined experience providing expert legal assistance to clients. We represent clients in all types of wealth management transactions. We pride ourselves not only for our professionalism, but also for our client service. We return phone calls within one business day. We keep clients informed. We complete the work within the allotted time frame. Call us at 281-242-0995 or complete our online contact form.
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