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tax season

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By Nancy Burner, Esq.

Nancy Burner, Esq.

Spring is here and so is tax season. The income tax filing deadline this year is April 18, 2022. You have likely been gathering your documents or filing an extension. Since you are already working on putting your affairs in order, this is the perfect time to finally check estate planning off your to-do list. Why is now the best time to do estate planning when you are already stressed out about your tax documents?

You are already organized

You are already organizing your financials — expenses, bank accounts, 1099s. This is the same information you need to disclose to an estate planning attorney. Your estate just means “everything you own.” Your estate includes real property, bank accounts, retirement accounts, stocks and bonds, life insurance, business interests and any other valuables assets such as jewelry and art.

Maximize gifting next year 

If your income taxes are high or you regularly give money to family members, there may be a better way to maximize gift tax benefits. In 2022, individuals can gift up to $16,000 per year to as many people as they wish without incurring estate or gift tax. The recipient isn’t taxed on the amount received either. Individuals can also pay for other’s education and medical expenses estate and gift tax free. Although the federal exemption is very high right now at $12.06 million, it is set to sunset to $5.9 million in 2026. Estate planning attorneys can help you leverage this historically high exemption before it goes down.

Business succession planning 

If you own a business, you have likely already completed your returns. But have you thought about what would happen to your business if you became ill or passed away? Business succession planning is an integral part of estate planning — especially for small businesses. If you have any questions about your business structure, key person insurance or tax efficiency, now is the time to set up a meeting.

Save on income taxes

If your income taxes are too high, there are efficient ways to lower them. You can make donations to charity or transfer certain income generating assets to family members.

Changes in the law

Now is also a good time to review existing wills and trusts in light of upcoming changes in estate law. Do your beneficiary designations on your retirement accounts still make sense after the passing of the SECURE Act? If it has been more than a few years, you will want to make an appointment to review your documents with your attorney.

Protect your family 

Doing estate planning is one of the kindest things you can do for those you leave behind. Taking the time now to protect your family eases their burden later. If you have minor children or beneficiaries with special needs, estate planning is crucial.

An estate planner can draft an estate plan tailored to your situation — from simple wills and revocable trusts to asset protection planning — and organize your estate planning documents so everything can be kept safely in one place. We cannot know the future, but we do know that there is no way to avoid death or taxes.

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

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By Michael Christodoulou

Michael Christodoulou
Michael Christodoulou

We’re now well into what’s known as “Tax Season.” If your income in 2020 was affected by the COVID-19 pandemic, your tax return will reflect it. However, if your earnings were fairly normal last year, you might look at your tax situation and wonder how you could improve it in 2022. One area to look at may be your investment-related taxes.

To help control these taxes, consider these moves:

  • Take full advantage of tax-deferred investments. As an investor, one of the best moves you can make is to consider contributing as much as you can afford to your tax-deferred accounts – your traditional IRA and 401(k) or similar employer-sponsored plan – every year. If you
  • Look for tax-free opportunities. Interest from municipal bonds typically is exempt from federal income tax, and, in some cases, from state and local income tax, too. (Some municipal bonds, however, may be subject to the alternative minimum tax.) And if you qualify to contribute to a Roth IRA – eligibility is generally based on income – your earnings can be withdrawn tax-free, provided you’ve had your account for at least five years, and you don’t start taking withdrawals until you’re at least 59-1/2. Your employer may also offer a Roth 401(k), which can provide tax-free withdrawals. Keep in mind, though, that you contribute after-tax dollars to a Roth IRA and 401(k), unlike a traditional IRA and 401(k), in which your contributions are made with pre-tax dollars.
  • Be a “buy and hold” investor. Your 401(k) and IRA are designed to be long-term investments, and you may face disincentives in the form of taxes and penalties if you tap into them before you reach 59 ½.  So, just by investing in these retirement accounts, you are essentially pursuing a “buy and hold” strategy. But you can follow this same strategy for investments held outside your IRA and 401(k). You can own some investments – stocks in particular – for decades without paying taxes on gains. And when you do sell them, you’ll only be taxed at the long-term capital gains rate, which may well be less than your ordinary income tax rate. But if you’re frequently buying and selling investments you’ve held for one year or less, you could rack up some pretty big tax bills, because you’ll likely be taxed at your ordinary income tax rate.
  • Be prepared for unexpected taxes. Mutual fund managers are generally free to make whatever trades they choose. And when they do sell some investments, they can incur capital gains, which may be passed along to you. If this is a concern, you might look for funds that do less trading and bill themselves as tax efficient.

While taxes are one factor to consider when you invest, they should probably not be the driving force. You need to build a diversified portfolio that’s appropriate for your risk tolerance and time horizon. Not all the investments you select, and the moves you make with them, will necessarily be the most tax efficient, but by working with your financial and tax professionals, you can make choices that can help you move toward your long-term goals.

This article was written by Edward Jones for use by Michael Christodoulou, ChFC®,AAMS®,CRPC®,CRPS® of the Stony Brook Edward Jones.

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