The Sec. 83(b) Election: Save Tax On Restricted Stock Awards

June 5, 2018

Today many employees receive stock-based compensation from their employer as part of their compensation and benefits package. The tax consequences of such compensation can be complex — subject to ordinary-income, capital gains, employment and other taxes. But if you receive restricted stock awards, you might have a tax-saving opportunity in the form of the Section 83(b) election.

Want to Help Your Child Buy a Home? You’ll Need to Act Now.

August 11, 2015

Mortgage interest rates are still at historically low levels, but they’re expected to go up by year end. So if you’ve been thinking about helping your child — or grandchild — buy a home, consider acting soon. There also are some favorable tax factors that will help:

Are You in the Higher Tax Bracket? Take Advantage of Long Term Capital Gains Rate

The long-term capital gains rate is 0% for gain that would be taxed at 10% or 15% based on the taxpayer’s ordinary-income rate. If you have loved ones in the 0% bracket, you may be able to take advantage of it by transferring appreciated assets to them. The recipients can then sell the assets at no federal tax cost.

Before acting, make sure the recipients you’re considering won’t be subject to the “kiddie tax.” This tax applies to children under age 19 as well as to full-time students under age 24 (unless the students provide more than half of their own support from earned income).

For children subject to the kiddie tax, any unearned income beyond $2,000 (for 2014) is taxed at their parents’ marginal rate rather than their own, likely lower, rate. So transferring appreciated assets to them will provide only minimal tax benefits.

It’s also important to consider any gift and generation-skipping transfer (GST) tax consequences. For more information on transfer taxes, the kiddie tax or capital gains planning, please contact us. We can help you find the strategies that will best achieve your goals.

© 2014 Thomson Reuters/Tax & Accounting

Timing Business Income and Expenses to Your Tax Advantage

Typically, it’s better to defer tax. Here are two timing strategies that can help businesses do this:

1. Defer income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services.
2. Accelerate deductible expenses into the current year. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before Dec. 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

But if you think you’ll be in a higher tax bracket next year, consider taking the opposite approach — accelerating income and deferring deductible expenses. This will increase your tax bill this year but can save you tax over the two-year period.

These are only some of the nuances to consider. Please contact us to discuss what timing strategies will work to your tax advantage, based on your specific situation.

© 2014 Thomson Reuters/Tax & Accounting

Give and Receive with a Charitable Remainder Trust

Would you like to benefit charity while reducing the size of your taxable estate yet maintain an income stream for yourself? Would you also like to divest yourself of highly appreciated assets and diversify your portfolio with minimal tax consequences? Then consider a Charitable Remainder Trust (CRT). Here’s how it works:

• When you fund the CRT, you receive a partial income tax deduction and the property is removed from your estate.
• For a given term, the CRT pays an amount to you annually.
• At the term’s end, the CRT’s remaining assets pass to charity.

If you fund the CRT with appreciated assets, it can sell them without paying tax on the gain and then invest the proceeds in a variety of stocks and bonds. You’ll owe capital gains tax when you receive CRT payments, but much of the liability will be deferred. Plus, only a portion of each payment will be attributable to capital gains. This also may help you reduce or avoid exposure to the 3.8% net investment income tax and the 20% top long-term capital gains rate.

For more ideas on tax-smart gifts to charity, minimizing estate taxes, maintaining an income stream or diversifying your portfolio tax efficiently, contact us.

© 2014 Thomson Reuters/Tax & Accounting