Senior couple holding hands silhouettes

TAX PLANNING AND DEDUCTIONS FOR RETIREMENT

In general, there are two sets of tax issues with respect to those who are approaching retirement - lowering current income and other taxes and reducing inheritance/estate taxes. Massey, Stotser & Nichols, PC is a full service, Birmingham, Alabama law firm that can help with the legal aspects of both types of tax reduction.

TAX PLANNING TO REDUCE CURRENT ANNUAL TAX LIABILITIES

Contact Us



Here is a quick list of various deductions that can be used to offset current income and, thus, reduce tax liabilities:

  • Deductions for medical and dental expenses: These deductions are available to everyone, but are more useful to an aging population which often has higher medical and dental expenses; insurance premiums, prescriptions, nursing care, and other healthcare expenses; under current rules, the deduction is only available for expenses in excess of 10% of adjusted gross income ("AGI").
  • Extra standard deduction: Taxpayers over the age of 65 are eligible for an additional standard deduction; this is only available if you do not itemize your deductions.
  • Retirement plan contributions: Even if you are actually retired, you can still make tax-deductible contributions to retirement plans.
  • Shifting From Salary/Wage Income to Investment/Capital Gain Income: When possible, tax liability can be reduced if income can be shifted from salary/wage income to investment/capital gain income. Dividends and capital gains are all taxed at lower rates than ordinary salary/wage income. Moreover, these types of income are not subject to social security, medicare, or self employment taxes. Finally, various investment-related expenses can be deducted such as fees for attorneys, accountants, financial planners, banks, trustees, etc.
  • Creating a business: As part of creating investment income, many retirees create new businesses for new investments such as buying rental properties; many business deductions are available; as noted, dividends and capital gains are taxed at a lower rate; businesses also provide excellent mechanism for generational shifting of assets without losing control of the assets (see below).
  • Charitable contributions: Again, these deductions are available to everyone, but these are often more useful to an aging population that might have more money to contribute.

TAX PLANNING TO REDUCE ESTATE TAXES

Massey, Stotser & Nichols, PC also offers a full range of services related to estate planning with a focus on reducing inheritance and estate taxes. Our services include:

  • Custom-drafting wills and trusts for parents/grandparents to divide assets and avoid/minimize probate expenses
  • Creating trusts and investment vehicles to ensure for the future needs of young children or grandchildren with respect to education, healthcare, and similar
  • Formulating current year and annual strategies for generational asset transfers
  • Generating and implementing asset protection strategies with respect to eventual Medicaid eligibility
  • And more

Clients who are nearing retirement should also consider the advantages that can be obtained through the creation of a family business. Massey, Stotser & Nichols, PC. can help with this too. Certain business forms -- corporations and limited liability companies, for example -- can provide advantages allowing inter-generational asset transfer while allowing the grantor to retain control over the assets.

Take a family-run LLC, for example. If written correctly, the operating agreement can allow a grandparent, for example, to transfer non-voting ownership units to various grandchildren. Assuming there is a properly-drafted restriction on selling the units, the grandparent is then transferring monetary assets, but since the units are non-voting, the grandparent retains control over the assets. Moreover, since the units are non-voting, under proper accounting rules and the guidance of an experienced tax accountant, the value of the units might be discounted for purposes of taxation and the annual limit on annual inter-generational giving.

TAX PLANNING AND ELDER LAW ATTORNEYS IN BIRMINGHAM

If you are in need of tax and estate planning services in Southeastern Alabama, including the city of Birmingham, contact Massey, Stotser & Nichols, PC. We are a full service Birmingham, Alabama law firm that serves clients in the cities of Birmingham, Alabaster, Ashville, Bessemer, Clay, Fultondale, Gardendale, Homewood, Hoover, Leeds, Moody, Mountain Brook, Oneonta, Pelham, Pell City, Pinson, Springville, Trussville, and the surrounding areas. Our other practice areas include real estate, business law, automobile accident law, wrongful death, and personal injury law.

DO YOU NEED HELP WITH AN AUTO ACCIDENT?