Keeping Your Wealth After You Have Built It

You worked hard and spent many long hours building your wealth.  Now what?  What's next?  Investors often keep working and building wealth, but they do not always focus on making sure that they are keeping as much of the  wealth as possible. 

Wealth Maintenance  

Keeping or maintaining your wealth is just as important as making or creating your wealth.  You can easily lose quite a bit of your wealth to income taxes if you are not careful.  Careful planning with your advisors can go a long way toward maintaining and keeping your wealth instead of paying income taxes, capital gain taxes or depreciation recapture taxes to the Federal or state government. 

Income Tax Planning

Maintaining or keeping your wealth is not just about making the right income tax favored investments.  It includes wealth management through minimizing your annual income tax bill, deferring your capital gain taxes and depreciation recapture taxes on the sale of investments such as real estate, minimizing your estate taxes (inheritance taxes or death taxes), avoiding gift taxes or transfer taxes, and much more.

Ordinary Income Taxes

There are so many opportunities to manage your annual income tax liabilities.  It is important to set aside some time to meet with your income tax advisors or tax attorney and discuss your business operations and/or your investments to ensure that you are managing your operations and investments in an income tax favorable way.

Capital Gain Taxes

We expect that capital gain taxes will be increased in the near future now that we have a new administration in the white house.  President-Elect Obama has made it very clear that he intends to raise the capital gain tax rate to at least 20%.  The questions are only when and exactly how much.

Although the current capital gain rates are relatively low compared to historical levels, it still makes sense to defer the payment of your capital gain taxes when possible.  Deferring your capital gain taxes helps you build and maintain (keep) your wealth over the long run.  Paying capital gain taxes is like running up hill.  You can still get ahead, but you have to work so much harder to do so. 

Take advantage of capital gain tax deferral or tax exclusion options when available.  You should consider some of the following capital gain tax deferral or tax exclusion strategies:

• Section 1031 of the IRC (1031 Tax Deferred Exchanges on investment property)
• Section 1033 of the IRC (1033 Tax Deferred Exchanges - Involuntary Conversions of Property)
• Section 121 of the IRC (121 Tax Free Exclusion on sale of primary residence)
• Combined Section 1031 and 121 strategies
• Section 453 of the IRC (Deferred Sales Trust - installment sale treatment)

Depreciation Recapture

While there was no discussion of depreciation recapture during the election campaign, we also expect that the income tax rate for depreciation recapture will be increased under the current administration.  Depreciation recapture can be deferred under certain circumstances, but is generally taxable when an asset is sold in the year of sale. 

Estate and Gift Taxes

The current estate taxes and gift taxes are scheduled to revert back to their 2003 levels under the sunset provisions of the current tax laws covering estate tax and gift tax.  We fully expect that the U.S. Congress will address this issue before the sunset provision is triggered.  However, the new administration could surprise us.