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Income Tax Planning

Effective Tax Planning and the Implications of Tax Changes for High Income Earners

For years, relatively low overall income tax rates and relatively high wealth transfer tax rates (the estate, gift, and generation-skipping-transfer or “GST” taxes are the wealth transfer taxes) meant that estate planners were primarily focused on ways to reduce wealth transfer tax exposure. This was true even where the transactions needed to reduce wealth transfer tax exposure could result in higher income tax costs.

Significant changes in both the income tax and wealth transfer taxes have resulted in low (or no) wealth transfer tax exposure for many clients, and much higher income tax exposure for higher income taxpayers.  

Goals of Income Tax Planning

Income tax planning generally focuses on ways to reduce, avoid, or defer the income tax effect of a taxpayer’s activities. This can include finding ways to keep current and future income from being included on an annual income tax return. It can also include finding ways to reduce the recognition of taxable income in any particular year, planning with the character of the income, and ways to increase tax deductions and credits. It can also mean shifting taxable income to lower-income taxpayer(s) while still allowing the family as an entity to continue enjoying the benefits of the income.