Your managing director asks if you can participate in a seminar that the firm is
ID: 1231747 • Letter: Y
Question
Your managing director asks if you can participate in a seminar that the firm is doing on tax efficient financial planning. He would like you to send him, in memo form, the various types of vehicles that can be used by clients to reduce the various kinds if taxation.Prepare a memo to the managing director that explains the different vehicles available that can be used for each of the following:
Minimize income tax
Minimize capital gains tax
Minimize estate tax
Concentrate on the vehicles, not the strategies because another of your colleagues will be summarizing those.
Need references
Explanation / Answer
There are several taxes that our clients are subject to and various vehicles that our clients can use to reduce their income tax liabilities. First we will look at income taxes. Our clients can open self directed retirement accounts such as an IRA in which they can make annual contributions (subject to limits) that will their current taxable income. ("How much of," 2010) We need to ensure that our clients are fully utilizing income adjustment deductions, such as student loan interest credit. We need to educate our clients in minimizing their capital gains taxes. The most common capital gains situations for our clients are capital gains tax from the sale or real estate or sale of investments. We need to make sure our clients understand that long-term capital gains tax are typically going to be taxed at a lower rate than regular income would. ("How to minimize," 2010) When we discuss long-term versus short-term capital gains we are talking about the holding period for an asset. Typically to qualify as a long-term capital gain, the asset must be held for more than one year. Estate taxes can be minimized in a number of ways. An estate can be kept at or below the annual exclusion by gifting excesses monies to family members. There are also several types of trusts that can be drawn up to help minimize estate taxes.
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