Before hiring an attorney, ask to sit down for an initial consultation. Be sure you ask about their experience creating comprehensive estate plans for the purposes of reducing your tax liability. In addition, make sure you ask about fees.
For example, assume Bob and Sue have an estate value of $10 million and they both die when the exemption is $5 million. When Bob dies, he can pass everything to Sue and no estate taxes will be due. But when Sue dies, her estate will equal $10 million and she can only use a $5 million exemption. The other $5 million will incur estate taxes in the amount of $1. 75 million. [3] X Research source
For example, assume Will and Sally are married to each other. Will has $3 million in assets and Sally has $7. 5 million in assets. When Will dies, he uses $3 million of his exemption to shield his assets from estate taxes. His unused exclusion amount is $2. 45 million (if the exemption amount is $5. 45 million). He passes that unused portion to Sally. When Sally passes away, she will have an exemption amount of $7. 9 million. Because she has $7. 5 million in assets, she will be able to distribute her entire estate without having to worry about estate taxes. [4] X Research source
One type of trust is a qualified personal residence trust (QPRT). When you set up this trust, your home will be removed from your estate but you can continue to live there for a certain period of time. Usually, the time period is somewhere between two and 20 years. Once this period is up, the home will be transferred to the trust’s beneficiaries. [5] X Research source [6] X Research source
Once you create the LLC, you can begin transferring whatever assets into the LLC that you want (e. g. , cash, property, and personal possessions). You will then translate the value of those assets into LLC units of value (i. e. , stock). Now you can transfer those units to whoever you want. The LLC units can be discounted up to 40% when they are transferred to non-managing members. This is where you can really reduce your tax liability. For example, if you want to gift one child non-management shares of LLC units that are valued at $1,000 each, you can apply a 40% discount to the value (bringing the value of each unit to $600). Now, instead of transferring 14 shares before having to pay a gift tax (because the gift tax applies after $14,000), you can transfer 23 shares. [8] X Research source
Transfer ownership to other people. Each policy will set out the ways you can transfer ownership. Look at your policy for details. When you use this method, the Internal Revenue Service (IRS) will disallow the transfer if you die within three years of making the transfer. Create an irrevocable life insurance trust. Once you transfer ownership of your policies to the trust, you are no longer the owner of them and they will not be included in your estate. Your trust will then distribute the proceeds to any beneficiary you name. [9] X Research source
Get references from bankers, insurance agents, or other professionals. Find out what each candidate charges for their services. Verify credentials and check references. Finally, conduct a face-to-face interview. Ask them how long they have been in the business; how long your task will take to complete; what software they use; and how often their clients get audited. [10] X Research source
First time home buyer credits; child care credits; Adoption credits; and Education credits. [12] X Research source
However, new rules only allow you to do this once in any 12-month period. Therefore, you need to plan your rollovers carefully to avoid taxes. [13] X Research source
In 2014, the most you could contribute to a 401(k), 403(b), or 457 plan is $17,500. [14] X Research source Try to contribute the maximum amount possible to reduce your tax burden as much as possible.
To update your withholding, fill out IRS Form W-4 and turn it in to your employer. IRS Form W-4 can be found at https://www. irs. gov/pub/irs-pdf/fw4. pdf. The Form will ask you whether to withhold at a single or married rate; how many withholding credits you claim (each allowance reduces the amount withheld); and whether you want anything else withheld. [15] X Trustworthy Source Internal Revenue Service U. S. government agency in charge of managing the Federal Tax Code Go to source [16] X Research source
Calculate your itemized deductions, which will include expenses like mortgage interest, state and local income taxes or sales tax, real estate taxes, gifts to charities, casualty or theft losses, and un-reimbursed medical expenses. Know your standard deduction, which for a single person is $6,100. [17] X Trustworthy Source Internal Revenue Service U. S. government agency in charge of managing the Federal Tax Code Go to source Compare the two and make a choice. Take advantage of whatever option offers you a bigger deduction.
