If you’re interested in minimizing your tax obligations and maximizing your savings, consider the helpful tips and ideas you’ll find in this newsletter. Call if you would like to discuss how any of this information relates to you. If you know someone that can benefit from this newsletter, feel free to send it to them.
Here are several tax strategies to consider as you look for opportunities to cut your 2025 tax bill.
Sell appreciated assets using the installment method. Consider selling appreciated assets, such as real estate, private company stock, or collectibles, via an installment sale to a family member or trust. This spreads the gain over several years, helping you manage the tax impact.
If sold to an intentionally defective grantor trust, you may avoid recognizing the gain altogether since the IRS doesn’t treat the sale as a taxable event between you and the trust.
Lend money to family members at low IRS rates. You can lend money to children, grandchildren, or trusts at the Applicable Federal Rate (AFR), which is typically far below market rates. If the borrower invests or grows that money at a higher return, the spread becomes a tax-free wealth transfer.
For May 2025, for example, you might lend $1 million at 5.0% for 9 years. If that money earns 8% annually, the gain over the interest paid is effectively transferred without triggering gift taxes. Structuring the loan, though, is key. Be sure to use formal loan documents, actually charge interest, and document repayments.
Plan now to defer revenue into 2026. Consider pushing revenue-generating events, such as business bonuses, asset sales, or consulting payments, into next year if it helps manage your AGI.
Business owners and self-employed workers may also benefit from adjusting the timing of invoices, shifting income across entities, or re-evaluating taking a salary compared with distributions. You could also explore setting up a deferred compensation plan or leveraging a captive insurance company if it fits your profile.
Some of these strategies may take several months to put into action, so summer is the perfect time to start thinking about deferral strategies.
Evaluate your state residency. Summer often means extended travel, and for those who split time across states, it’s worth revisiting residency and domicile strategies. With some states imposing high income and estate taxes, a move to a tax-friendly state can yield significant long-term savings.
But establishing legal residency isn’t just about where you spend the most time – it’s also about intent and documentation. So start collecting your voter registration, driver’s license, homestead exemptions, travel logs, and any other information that will be helpful should you choose to relocate.
Don’t wait until the end of the year to start thinking about how to minimize your 2025 tax bill. Start your tax planning now to avoid potential surprises later.
Lower Your Estate’s Taxable Assets by Crafting a Gift Giving Strategy
Gift giving isn’t just about you performing a generous act. It can also be a great tool for transferring your wealth, being tax efficient, and removing taxable assets from your estate. Here are some gift giving strategies that can benefit both donors and recipients.
- Leveraging the annual gift tax exclusion. You can give up to $19,000 per recipient in 2025 tax free without affecting your lifetime estate and gift tax exemption ($13.99 million for single taxpayers in 2025; $27.98 million for married couples). For married couples, this amount doubles to $38,000 per recipient when each spouse contributes.
Example: A couple with three children and five grandchildren can gift $38,000 to each of their eight heir annually, removing $304,000 from their taxable estate every year without incurring any gift taxes.
- Direct payment of medical and educational expenses. You can pay for someone else’s medical bills or tuition directly to an institution without these payments counting towards your annual gift tax exclusion.
Example: Grandparents can pay a grandchild’s $50,000 annual college tuition directly to the university, in addition to giving the grandchild an additional $38,000 gift, effectively transferring $88,000 tax free in a single year.
- Direct transfer of appreciating assets. Using a grantor retained annuity trust, you can transfer appreciating assets to beneficiaries with minimal tax impact. You, the grantor, receives annuity payments over a set term, with any remaining assets passing to heir tax free.
Example: A business owner places $5 million in company stock into a GRAT. The initial contribution returns to the owner over time, while the stock’s future appreciation passes to heirs with minimal tax consequences.
- Charitable giving using a donor advised fund (DAF). This is a way for you to make charitable gifts while maintaining control over distributions. Contributions to a DAF provide an immediate tax deduction, while funds can be granted to charities over time.
Example: You donate $100,000 in appreciated stock to a DAF, avoiding capital gains taxes while receiving a full itemized charitable deduction. The fund then distributions your donation to selected charities over several years.
- Using irrevocable trusts for tax-free wealth transfers. There are two types of irrevocable trusts to consider. First, a Spousal Lifetime Access Trust allows one spouse to gift assets into an irrevocable trust, providing financial benefits to the other spouse while removing assets from the couple’s taxable estate.
Second, a Dynasty Trust lets you pass wealth through multiple generations while avoiding estate taxes. These trusts are often used for family wealth preservation and long-term asset protection.
Use these gift giving strategy ideas to start creating your own plan to pass your assets and wealth to future generations.
How to Deduct Your Kids’ Summer Activity Expenses
The kids are out of school, which means now is a great time to review the rules to deduct eligible summer activities on your tax return. Tax deductible related daycare expenses through the use of the Child and Dependent Care Credit can be a great opportunity to reduce your child care expenses this summer. Here is what you need to know.
What is deductible?
The credit equals 20% to 35% of qualified unreimbursed expenses with a maximum amount of expenses being $3,000 for one person (maximum credit of $1,050) and $6,000 for two or more qualifying persons (maximum credit of $2,100).
How it works
To receive the credit you must:
- Have a dependent under the age of 13 or have a spouse or dependent who is physically or mentally unable to care for themselves
- Have earned income (wages) to support the dependent
- Have qualified expenses (that allow for care while you work or look for work)
- Financially support and maintain a home for the dependent
- If married, both you and your spouse must be working or looking for work
Some summertime tips
- Daycare expenses are the most common qualifying expense for the Dependent Care Credit.
- In-home daycare during the summer months also qualifies. Your sitter cannot be a dependent, a spouse, or someone under the age of 19.
- Day camps qualify for the credit.
- OVERNIGHT camps and summer school/tutoring do NOT qualify.
- Track the mileage of transportation to and from any qualified activity. For instance, if your daycare provider takes the kids on a field trip, the mileage would be part of the qualified activity.
- Even cooking and housekeeping expenses can count if at least partly done for the protection and safety of a qualifying person.
- Placing your child in a day camp while one of you volunteers at a charity would not work in determining qualified dependent care expenses.
Remember to get the provider’s name, address, and Social Security number/Tax ID number. Also retain any receipts and canceled checks to support your proof of payment. This information will be required when you fill out your tax return.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
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