Autumn Check-up: Take Action Now to Save on 2007 Taxes
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Greg Smith
Senior Vice President & Director of Private Client Services |
Medical practices tend to be extremely busy in the fall. During the autumn months, patients clamor for appointments that they put off during the summer, but now want to schedule before the holiday season. Despite what is sure to be an increase in your workload, it is crucial to take the time now to make certain you are wisely using all of the income tax deductions available to you in 2007.
In previous years, it has probably been all too easy to just hand relevant documents to your accountant and sign what he or she returns. But with several changes in the tax code over the past couple of years, it is vital to take some time before December 31 to talk with your financial advisor and your accountant.
When meeting with your financial advisor, discuss whether you will be experiencing any major changes in your lifestyle that would require a significant alteration in your financial planning. Examples would include a marriage, a divorce, the birth of a child, starting your own practice, opening an additional office or retiring. The fall is always a good time to reassess financial goals and objectives as well as evaluate your progress relative to them.
Then, if applicable, discuss four main tax code changes that may affect you:
- Gifts to children: Tax law changes effective in tax year 2008 will close the tax savings opportunity on investment gifts to children between the ages of 18-23. The so-called “kiddie tax loophole” allows the gift of appreciated stock to be gifted to children who pay lower tax rates on profits gained from the sale of the stock. Parents must act before December 31, 2007 if they want to take advantage of this gifting opportunity.
- Explore ways to save for college: Additional changes in the tax laws have caused many to rethink traditional custodial accounts that were usually established so that parents could save money or make investments in the name of their children. Known as Uniform Gift to Minor and Uniform Transfer to Minor accounts, they were attractive because the child usually paid a lower rate on the unearned income. Changes in the law now mean that children under the age of 18 who are still in school must pay tax on the unearned income at their parents’ rate. The tax expands to 18 year-olds and full-time students aged 19 to 23 beginning with 2008.The college savings plans known as 529 Plans may be the better route to go because they are not subject to the “kiddie tax”. Whatever investment vehicle you choose, it is important not to put off establishing some type of a college savings plan. When your children are old enough to go to college, it is critical that you have an established source of college funds so that you are not paying for their education with your retirement savings.
- Make a Charitable Gesture: Another tax law change allows you to donate appreciated assets to a qualified charity. For example, say you had shares of stock in the Acme Co. that you purchased for $10 a share. The stock is now worth $15 a share. You can donate the stock at the higher price of $15 per share. The charity will benefit by obtaining the full value of the stock and you can deduct the value of the stock up to 30 percent of your adjusted gross income. Your portfolio might also benefit from this tax provision if it enables you to remove a stock that you were holding only because of a large capital gain tax liability. So if you are feeling charitable, 2007 may be a good time to act.
- Invest in the Practice: The Small Business Tax Act of 2007 offers strategic opportunities for expansion of a business. As a result, now may be a good time to make a major investment in your business because the available tax deduction and spending limit have both been raised, retroactive to the beginning of 2007. The Work Opportunity Tax Credit expansion also has been enacted to allow businesses to receive tax credits for hiring a broader array of individuals, including disabled veterans.
Each individual’s circumstances are unique. Make sure you discuss all tax planning strategies with your financial advisory team prior to implementation. As we all know, taxes are inevitable, but smart planning today can save you money now and in the future.
Greg Smith is Senior Vice President & Director of Private Client Services for Haberer Registered Investment Advisor, Inc. He can be reached at 513-381-8200 |
