Can Estate Planning Reduce Taxes?
Yes, estate planning can significantly reduce your tax burden through several strategic approaches. Clients today are increasingly proactive about exploring tax planning and estate planning options.
Key Tax Reduction Strategies
Offsetting Capital Gains
Capital gains – profits from selling appreciated assets – are taxable but at lower rates than ordinary income if held over a year. You can reduce tax liability by strategically selling depreciated assets alongside appreciated ones, a practice known as “tax loss harvesting.”
Roth IRA Conversions
Many retirees discover they remain in similar tax brackets during retirement due to Social Security, pensions, and investment income. Converting traditional IRAs to Roth IRAs allows you to pay taxes upfront, then enjoy tax-free growth and withdrawal-free distributions after five years. Conversions can be done gradually rather than all at once.
Charitable Giving Strategies
Modern charitable giving offers superior tax advantages:
- Donor Advised Funds (DAF): Contribute appreciated assets to receive an immediate tax deduction while distributing funds to charities over time.
- IRA Required Minimum Distributions (RMD): Direct your mandatory RMD directly to charity, obtaining a tax deduction while avoiding taxable income.
- Annual Gifting: Give up to $16,000 per person annually tax-free, removing assets from your taxable estate.
All strategies should be reviewed with your estate planning attorney to ensure they integrate seamlessly with your overall financial goals.
If you or a loved one needs assistance with estate planning and tax reduction strategies, do not hesitate to contact The Stegall Law Firm. We are here to help.
