Tax Strategies













NUA Tax Strategies

What are the Key Benefits of NUA for the PG retiree?



Does it make sense to consider the NUA opportunities available to PG retirees?  Well, for the past decade that answer is a resounding ‘yes’ for a number or reasons.  Apart from the initial ordinary income tax to be paid on company stock distributed at the trustee’s cost basis, the shares taken in an NUA distribution that are not rolled over to an IRA have received the very favorable dividend tax treatment.  Rather than dividends being taxed at ordinary rates as is the case when in RPlus, shares directly owned are taxed at capital gains rates.   That has been a favorable 0, 5, or 15%.  

Moreover shares that are sold for income or further investment have also enjoyed the favorable 0, 5, or 15% capital gains treatment.  It doesn’t get much better than 0% tax, does it? 

For 2013, the rules are a bit more complex but, in general, the favorable treatment of the NUA distribution is still in play and capital gains rates for income that falls below the 25% tax bracket is still 0%.  

If you are thinking about retiring or have retired but have delayed distribution decisions, now is the time to put a plan in place to learn about, understand and to possibly take advantage of the very favorable tax planning as well as investment diversification opportunities available to you.     

We can help you make a plan.   Our work focuses on planning and wealth management advice for PG employees and retirees.    


Tax Planning Strategies for Income

What is tax planning Strategies for income?

 Tax planning strategies for income usually involves strategies for minimizing your taxable income. In particular, the timing and the method by which your income is reported become paramount. Effective planning begins with an understanding of the various types of income. Next, you'll want to consider tools for creating tax-free income, methods of sheltering earned income from taxes, strategies to defer taxes (and other tax-advantaged strategies), and vehicles for shifting income and tax. For older taxpayers, it's also useful to know how to minimize taxation of your Social Security benefits.


Why is it important for you to understand the concept of income?


As a general rule, you are required to pay tax on your income from whatever source derived, unless a statutory exception applies. Therefore, it's important for you to know which items are included and excluded from the IRS's definition of gross income. Additionally, income can be taxed at different rates, depending on whether the income is ordinary or derived from the sale or exchange of certain classes of property held for certain minimum time periods. Because losses can sometimes be used to offset income, it's also important to understand the concept of active versus passive income.


Why is it important to know how to generate tax-free income?


Although income is usually taxable, there are a number of vehicles that can produce tax-free or nontaxable income. You may be able to enjoy some portion of your income, tax free, by switching some of your investment money to these vehicles. Several useful vehicles exist, including Roth IRAs, tax-exempt bonds, and qualified small business stock.


How can you shelter earned income from taxes?


Sheltering your earned income involves employing one or more tools to generate losses, deductions or credits that will reduce the current federal tax burden on your earned income. Typically, your desired result is income deferral. Several methods exist to shelter earned income from taxes, including traditional deductible IRAs and employer-sponsored retirement plans.


Why should you be aware of strategies to defer taxes?

There are several reasons why deferring the taxation of income is generally desirable. First, deferring taxes will provide you with more money right now to fund various financial plans. Moreover, certain qualified retirement plans allow you not only to defer some of your current taxable income, but also let your retirement savings grow tax-free until a distribution is taken.

As a general rule, when tax rates are stable, it's wise for you to defer the recognition of as much income as possible to a later year and accelerate deductions. This will allow you to minimize your current income tax liability. As a consequence, you will be able to invest money that would otherwise have been used to pay income taxes, keeping that money working for you. When you eventually recognize the income, it's possible that you'll be in a lower tax bracket.


What are some other tax-advantaged strategies?

Many other tax-advantaged strategies exist. For instance, you should be aware of tax shelters and tools for creating passive income in order to take advantage of passive losses. Additional strategies that may help you reduce your overall income tax burden include taking advantage of the tax benefits of generating capital gains, investing in real estate, receiving annuitized payments, and engaging in year-end tax planning.


How can you shift income and tax to others?

Income shifting refers to dividing income among two or more taxpayers in a way that lowers overall taxes. Typically, income is shifted from higher bracket taxpayers to lower ones. If you're interested in income shifting, you should be aware of a number of topics, including the kiddie tax, the tax treatment of below-market and interest-free loans, and the benefits of making gifts of income producing property and employing family members.


What about Social Security benefits?

If you're an older taxpayer, you should probably be concerned with minimizing the taxation of your Social Security retirement benefits. Certain techniques exist to limit the taxation of such benefits, including filing your income tax return jointly and employing tools to reduce your modified adjusted gross income.