The problem with the shock of economic downturns like this is that we often just get frozen, waiting for times to get better. In reality, if you act when property and stock values are down, you can actually get a huge savings down the line.
I’ve talked about now being the time to roll your pension into a Roth. That’s because you’ll pay income tax on the current value. When the value increases, it happens tax free, not merely tax deferred. You can figure on saving 20% or more in taxes by taking advantage of that strategy right now.
Another once in a lifetime strategy opportunity could be if you have a personal residence that you want to leave to your children. Estate planning for the future has never been more uncertain with the coming election and expiring estate provisions in 2010. So, what can you do now? One strategy is to put your personal residence into a Qualified Personal Residence Trust (QPRT). These have been around for years, but not as popular during the rapidly appreciating real estate market.
Here’s how it would work: You put your personal residence into the trust. There is a gift tax (which can be taken against the estate tax exemption) due on the future value calculated based on the current fair market value. In other words, you might be looking at about 40% of the current depreciated value. Then, upon the expiration of the trust or your death, the property goes to your beneficiaries. Meanwhile, you can live in the house during the rest of your life.
You’ve just transferred a big asset out of your estate at a fraction of the tax.
These are just a few of the strategies that we set up for our clients at DKTaxServices. You can get started today by sending in your past tax returns for us to review. Securely fax to 602.258.0721 or, if you can xx out Social Security numbers or password protect a PDF, please email to Richard@DKTaxServices. You can also mail them to us. Give Richard a call at 888.592.4769 for more information.