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Untangle your taxes
Julia Cloud, partner and national service line leader for Deloitte's Private Client Advisors practice, introduces ‘The essential tax and wealth planning guide for 2010: a year-round resource for navigating change in today’s economy.’

As leaders in Washington have sought ways to improve the health care system, shore up Medicare and social security, and reform the tax code, increasing taxes on the wealthy has often led the list of ways to raise revenue. Additionally, continuing challenges in the economy mean that taxpayers, investors, and private business owners have to think strategically about structuring their assets.

To help individuals and private companies effectively navigate today’s volatile landscape, Deloitte Tax LLP (Deloitte Tax) has released a useful resource: ‘The essential tax and wealth planning guide for 2010: a yearround resource for navigating change in today’s economy.’

The guide focuses on areas where changes can be expected and where taxpayers should look for opportunities to preserve the value of their holdings and manage their tax liabilities. The guide also stresses the need to plan throughout the year, despite the lack of concrete information about the future.

As you consider your approach to the changing environment, the guide’s four primary sections can help walk you through the steps necessary to review your current situation and to consider appropriate actions for protecting and building your financial position.

Current environment
The guide begins by examining some of the forces that will require changes in federal taxes and spending. Effective planning in this environment demands that you develop your own personal views on the economy and the markets, on the future of taxes and tax rates, and on federal spending priorities that may influence your financial and retirement needs.

Although no one can predict the future, you may want to test your plans under a range of possibilities. In particular, the guide highlights several areas that may affect high-net-income individuals, including:

  • individual tax rates
  • estate and gift taxes
  • taxation of partnership profits interests

The guide provides a high-level overview of the US political climate and challenges that may shape the debates and developments around these and other areas, as well as a general outlook for tax reform.

Just one example is the passage of the Patient Protection and Affordable Care Act, which includes a number of provisions targeting high-income individuals. It is clear that Congress must soon confront the expiration of the 2001 and 2003 tax cuts, as well as reform related to corporate income taxes.

But even if these waves of reform occur, Congress likely will not have enough revenue to do all that is asked of the federal government – forcing consideration of an additional federal levy in the form of some kind of a consumption tax. The potentially dramatic level of changes creates unparalleled uncertainty for individual tax and wealth planning. It also can create opportunity for those who address the uncertainty head on.

Accordingly, the Deloitte Tax guide offers three important principles for planning in uncertain times:

  • Continue to plan; work with what you know
  • be aware of quick answers and simple advice
  • watch for opportunities and know your risk

Income tax
Appropriately reducing or postponing the payment of federal, state, and local income taxes is a critical component of assembling the capital from which wealth grows. Although income taxes may seem hopelessly complex, effective tax planning begins with:

  • understanding and managing the alternative minimum tax
  • using tax benifits accorded capital gains and qualified dividends
  • planning chartitable giving
  • considering the impact of state taxes
  • managing the benifits afforded by qulified retirement and incentive compensation plans.
In addition to reviewing considerations and offering a variety of planning tips related to these areas, this chapter also summarises recently enacted income tax law changes affecting individuals and reviews current tax rate structures.

Investors are faced with seemingly daily upheaval in the markets. While it is natural and healthy to reexamine our fundamental investment plans and take advantage of lessons learned, an investor’s best defence is solid, up-front planning and effective investment management. The guide reviews some fundamental activities that can help you establish a sound approach to investment planning. These steps include:

  • articulating needs, goals, and preferences
  • investing pursuant to an established asset allocation that considers your risktolerance, time horizon, and personal goals
  • considering the use of asset allocation techniques to enhance the tax efficiency of your portfolio
  • putting your investment plan in writing
  • implementing your investment plan
  • monitoring your preferences and holding your investment managers accountable.

Wealth transfer tax
Effective wealth transfer planning involves an ongoing process that requires monitoring, updating, and making adjustments throughout your lifetime as goals, objectives, and circumstances change and evolve. The five major steps of the planning process are:

  • defining your family wealth and charitable goals and objectives
  • understanding the available wealth transfer tax exemptions, exclusions, and transfer taxes
  • reivesting and tuning your plans and goals as personal cirumstances, and tax laws, change.

In addition to providing planning ideas to support these essential planning stages, the guide reviews current rules and issues related to gift, estate, and generation-skipping transfer taxes. It also covers other contemporary matters such as Dynasty trusts, charitable gifts, the role of insurance in wealth planning, cross-border wealth considerations, and wealth planning in a lowinterest- rate environment.

Other planning considerations
Finally, the guide includes a section examining key developments and planning ideas relevant to private business owners, private equity and hedge funds, and real estate investors, particularly in the current economy. The guide also includes a section exploring current incentives for individual taxpayers to go “green,” including a number of provisions introduced as part of the American Recovery and Reinvestment Act of 2009.

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