Filed Under:Life Insurance, Life Planning Strategies

Expert foresees end-of-year rush to implement tax avoidance strategies

Photo credit: Renjith Krishnan
Photo credit: Renjith Krishnan

Whatever compromises President Obama and a divided Congress agree on to avert the pending fiscal cliff and reform the current loophole-ridden tax code, taxes on wealthy Americans are certain to rise next year. That means that life insurance and financial service professionals need to approach their clients before year-end about leveraging a host of tax-avoidance strategies.

So said, Andrew Friedman, principal of the Washington Update LLC, during a Nov. 8 webcast for the investment community hosted by Sammons Retirement Solutions. Because of likely increases in taxes to be paid on income, investments, estates and charitable gifts, he said, the high net worth would do well to take advantage of still low tax rates available through year-end.

Assuming the Bush tax cuts for these households expire, they'll be paying an effective income tax rate of 44 percent, up from 35 percent currently. These income earners will also pay a capital gains tax of 24 percent, up from the current 15 percent, and a dividends tax approaching 44 percent, up from 15 percent.

Also for the affluent to consider: The year-end expiration of the $5.1 million gift and estate exemptions. Absent Congressional action, the estate tax regime will revert to a $1 million applicable exclusion amount and a top tax rate of 55 percent (up from 35 percent currently), as existed before passage of the Economic Growth and Tax Relief Reconciliation Act of 2001.

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Nichole Morford

Nichole Morford
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