Trim the Tree, Trim the Taxes

Tab 1

December 14, 2015

The clock is ticking on 2015 and with it your opportunities to potentially minimize your tax liability.


With year-end fast approaching, here are a few key tax laws from The Private Client Reserve’s white paper “Tax Planning Considerations for 2015” that you might like to discuss with your tax and legal advisors before the end of the year:


Tackling Tax Brackets


One of the most important planning steps is “tax bracket management,” which involves taking steps to manage income to avoid moving into a higher tax bracket. This is particularly significant for married individuals filing a joint return who are nearing the 39.6 percent tax bracket ($464,850 or higher).


As you begin managing your funds, it’s crucial to understand that even if your total income level puts you in a certain tax bracket, not all income will be taxed at that level. This is because federal income tax applies on a graduated basis as your income level rises.

Other taxes that take effect if you hit certain income thresholds include:


  • Medicare surtax – A 0.9 percent surtax on wages for unmarried individuals earning more than $200,000 and married couples filing jointly earning more than $250,000.
  • Net investment income tax – A 3.8 percent tax applies to investment income including interest, dividends, capital gains, rental and royalty income, and more. This affects single taxpayers with modified adjusted gross income (MAGI) of $200,000 or more and married couples filing jointly with $250,000 or more of MAGI.
Tab 2

December 14, 2015

  • Tax on long-term capital gains, qualifying dividends – This tax is 15 percent for most filers but climbs to 20 percent for those in the 39.6 percent tax bracket.

Deferring Income


If you’re nearing the threshold for a higher tax bracket or the other considerations above, you may be able to achieve substantial tax savings by deferring income.


  • If you own a business, you may delay the collection of income.
  • If you’re a shareholder of a closely held C corporation, you may consider delaying distributions from the corporation.

You may also reduce taxable income by:

  • Starting or boosting pre-tax contributions with your company’s retirement plan.
  • Maximizing your pre-tax contributions to a Health Savings Account.
  • Making additional payments that are tax deductions by Dec. 31, including payments on a mortgage, state estimated tax payments, property tax payments or an extra contribution to a qualified charity (see below). Keep in mind, however, that taxpayers that are subject to the Alternative Minimum Tax do not gain any tax benefit on their federal return from property or state tax payments.

Giving to Charities


You may also be able to minimize your tax liability with particular methods of charitable giving. Consider:


  • Contributing appreciated stock or other investments. Have you held the stock for more than 12 months? If so, you can deduct its fair market value on the date of the gift from your taxable income but won’t have to pay capital gains tax on the appreciated value – a crucial consideration if you are verging on the next income threshold level.​​
Tab 3

December 14, 2015

  • Creating a donor-advised fund. This lets you become eligible for a full tax deduction in 2015 even if the contribution isn’t disbursed to the charities immediately.
  • Establishing a family foundation that makes grants to charities. The full amount contributed in 2015 is tax deductible. Keep in mind, though, that 5 percent of assets must be distributed yearly, so the foundation will need to remain active over time.
  • Creating a charitable remainder trust or charitable lead trust. These are irrevocable trusts that involve splitting interests between designated charities and yourself.

Owning a Business


There is a greater range of reduction opportunities for business owners, including:


  • Buying new equipment before year’s end. You can expense up to $25,000 of the purchase from taxes.
  • Expanding your involvement in an S corporation to active status to avoid exposure to the 3.8 percent net investment income tax. This also applies to any passively owned partnership or limited liability company interest.
  • Thinking of selling? Do so on an installment plan to spread out the realized gain over several years.​
Tab 4

December 14, 2015

Planning an Estate


Federal estate tax laws are as favorable today as they’ve been in past generations, but there can still be significant changes to bear in mind. Key areas to discuss with your legal advisor include:


  • Grantor retained annuity trusts (GRATs), where the earnings generated above an assumed interest rate can be passed on to beneficiaries free of gift tax if you survive the GRAT’s term.
  • Intentionally defective grantor trusts (IDGTs), which help reduce an estate’s value. However, the creator of the trust must still pay income tax on its earnings.
  • Spousal access trusts, which take assets from your estate in order to help your spouse with generated cash flow.

For more on this subject, read the white paper “Tax Planning Considerations for 2015,” which includes tax-rate brackets.


Please see important information below.

Financial Planning