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Retirement Planning

·         Certain plans, such as 401(k) and Keogh plans, allow larger tax deductions but must be established by year-end, even though contributions don’t need to be made by that time.

·         Any taxpayer can now convert a traditional IRA to a Roth IRA, regardless of income.  Certain qualified plans may allow for an “inside the plan” conversion.  These should be considered where appropriate.

·         If a child has earned income, consider various strategies he or she can use to contribute to a traditional or Roth IRA. 

Investment Strategy

·         Looming tax law changes mean getting coordinated advice from both the tax and investment advisors is more important than ever.  Be sure to strengthen your relationships with your co-advisors!

·         Work to optimize net capital gains and take advantage of any unrealized losses before year end (tax loss harvesting).

·         Re-evaluate tax-exempt yields in light of current market conditions.  

Financial Planning

·         The volatile economic events of the past few years make updating financial plans critical.

Lifetime Gifts

·         Maximize the $13,000-per-recipient annual exclusion by giving assets while considering cash flow needs and long-term estate planning goals. 

·         Currently, the amount that can be given without incurring any gift tax is $5 million (this is in addition to the annual exclusions for lifetime gifts mentioned above).  The gift tax rate for gifts greater than $5 million is 35 percent for 2011 and 2012.  The lifetime gift amount will decrease to $1 million, and the gift tax rate will increase to 55 percent, beginning January 1, 2013.  This provides individuals with a short window of opportunity to transfer more wealth during their lifetime to shift future appreciation to the next generation.

·         When considering lifetime gifts above the annual exclusion, remember that certain strategies are of critical importance.  For example, should the gifts be in cash or property?  Outright or in trust?   

Low Interest Rates and Low Valuation Opportunities

·         Applicable Federal rates (AFTs), which are the minimum interest rates that must be charged for bona fide loans between related parties, are at historical lows.  Thus, it may be possible to refinance loans between family members or with a closely held business and significantly reduce interest payments.

·         The combination of the $5 million gift tax exemption (available in 2011 and 2012) with historically low AFRs creates a brief window of opportunity to transfer unprecedented amounts of wealth to heirs through the use of leverage and certain types of trusts.  These types of structures are complex and will require collaborative work between the financial advisor, tax advisor and estate attorney.

·         Certain assets have declined in value as the result of market downturns.  It might be advantageous to consider making a lifetime gift of investments that have the potential to rebound.


I acknowledge Moss Adams LLP for providing much of the content in this article from its Year-End Tax Planning Guide: 2011

Any tax advice contained in this article, unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax-related penalties that may be imposed on the taxpayer under the Internal Revenue Code or applicable state or local tax law of (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

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