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Important 'Spring Cleaning' Tips to Remove your Financial Dustballs

Spring Cleaning involves more than closets and windows. Before schools let out, traffic eases up, and daylight extends into the night, consider addressing these financial dust balls.

Tax Matters and Your Kids

The best time to review lingering tax-related matters or think about new strategies is fresh off the filing of your returns. Consider these points to get your total financial situation freshly “cleaned” for the next tax year:

  • Hire your kids to work at the family business: Children under 18 employed by their parents’ business (sole proprietors or husband and wife owned partnerships) are not subject to employment taxes. This is a handy way to shift spending money to kids. The work and pay rate needs to be legitimate.
  • Help your kids establish and fund ROTH IRAs. Contributions are limited to the amount of earned income, or $5,500, whichever is less. Contributions to Roth IRAs, while not deductible, allow for tax-free appreciation and distributions.
  • College Savings and Custodial Accounts. Remember, custodial accounts are the property of your children, outright, at age 18 or 21 (depending on State). If this is not your intention, consider modifying how you build up your kids’ savings and investment, and if it is worthwhile to establish trusts. Also, for your young kids or grandkids, 529s or prepaid college savings plans provide great tax benefits when started early. However, note that prepaid college plans are considered as the student’s, when seeking financial aid.

Tax Matters and You

  • How about a ROTH contribution for you? Look at your company retirement plan. If the plan has a ROTH option, consider making these after-tax contributions. Weighing the benefit of ROTH accounts is largely an exercise in pondering your future vs. current tax rates. If a ROTH option is not available in your current retirement plan, consider raising the option with the appropriate advisors.
  • Restricted Stock and capital gains. If you receive restricted stock, consider making the election to treat the value of the restricted stock as income when received, in order to achieve capital gain treatment when you sell the stock in future years. This is a time-sensitive election.
  • Are you making significant charitable contributions? Consider making gifts of appreciated stock. While cash contributions represent the transfer of after-tax value, gifts of appreciated stock are a transfer of value before taxes — thus a better bang for the buck.
  • Reflect on recent or upcoming changes in your family situation. Changes in family circumstances, financial situation, and business matters may require action. Consider these questions:
    • Are updates required for beneficiary designations and contingent beneficiaries, trustees or contingent (or revocable trusts) trustees, trust protectors, powers of attorney, executors, and guardians for your estate planning documents? Have people moved, passed away, or been added to your immediate family and family-at-large?
    • Is your Will the primary instrument to pass assets, and is it still the most suitable format, or would your wishes be better served by setting up a Revocable Trust?
    • Do your documents properly reflect your wishes of how you want to transfer your assets upon your death, and protect the money left to others?
    • Are there new roles to be filled or old ones to be eliminated? Are your trustees and guardians still necessary or, conversely, still up to the task of handling responsibility?
    • Have business relationships changed, and related insurance arrangements been updated?

For information or help on any of the above, feel free to contact me or any McKinley Carter advisor at 866.306.2400.

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