December 2014 Planning Pointers

Here are a few helpful tax planning tips.

Alerting Clients to the Income Tax Implications of a Grantor Trust

Grantor trusts are highly valuable estate planning tools that can be structured to yield a variety of tax results. In one common grantor trust structure, the trust assets of an intentionally defective grantor trust will not be includible in the grantor’s gross estate, yet all items of income – ordinary income and capital gains – will be taxable to the grantor. Grantor’s responsibility for the income tax liability effectively further reduces the grantor’s estate.

It is critical for grantors to understand these income tax implications. It is especially important for cash flow planning purposes because in many such structures, the grantor will not receive cash distributions from the trust. If the grantor does not want to be liable for the income tax then it is possible to structure the trust in other ways. A discussion of the pros and cons of grantor trust status for income tax purpose is warranted in such instances.

Active Tax Planning Makes for Satisfied Clients

As we near the year end, we encourage clients to review their 2014 activity as compared to their 2013 tax returns. Individuals may realize a calmer 2014 tax filing season by now evaluating upcoming cash flow needs. Proactive planning with respect to transactions, tax withholding, and estimated tax payments is essential. Baker Newman Noyes, with its collaborative model, works with clients and their advisors to make sure tax planning is a priority and timely considered.

Optimizing the Timing of Tuition Payments for the Education Credit

To be eligible for a 2014 tax credit for post-secondary tuition payment, both the American Opportunity Credit and the Lifetime Learning Credit require that the tuition be paid during the 2014 calendar year. In addition, tuition payments made in 2014 that are attributable to academic periods beginning in the first three months of 2015 are eligible for the 2014 education tax credit. For more information on education credits, please see our article by clicking here.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.