In dealing with the novel coronavirus, many states have imposed shutdowns to protect the public. Colorado is one such state, having closed local, non-essential businesses in densely populated areas early on. The state also mandated a stay in place order that requires Coloradans to remain at home except when absolutely necessary.
As a result, the local economy has significantly slowed down. At the same time, the impact of COVID-19 on the global markets appears dire as well. However, even amidst the current economic downturn, there could be tax planning opportunities.
Tax Planning Opportunities to Consider in Light of the Stock Market Sell-Off
Convert a traditional IRA into a Roth IRA.
Making this sort of conversion entails paying taxes on the amount converted as part of your gross income for the year. However, doing so now, while the stock market is down, is less costly if your traditional IRA is stock-heavy. While this does mean you will be paying taxes earlier than you may have desired, a Roth IRA does not require that you take required minimum distributions during your lifetime. Thus, you can avoid the tax headache these RMDs create for traditional IRAs when they start to increase every year after you reach 70.
At the same time, income and gains in Roth IRAs compound tax free over time. The eventual distribution of the Roth IRA is also tax free. These benefits may reduce the amount of taxes you pay over your lifetime as compared to the traditional IRA.
Consider making a gift out of devalued property.
You can also make property gifts, either directly or through a trust, that are more property tax free. Choosing property hurt by the current markets can put you in a position to take advantage of the annual gift tax exclusion. This exclusion means that gifted property valued at or under $15,000 is not subject to gift or estate taxes. This figure jumps to $30,000 for gifts made by married couples. Making such gifts is one of those tax planning opportunities that can benefit your family later when the markets turn around.
Make a loan to an adult child.
The market downturn means interest rates are low right now. For this reason, you should consider making a low or no-interest loan to a child. They can then buy investments cheaply and sell later when the markets bounce back. This tax planning opportunity allows you to transfer money out of your estate without worrying about gift or estate taxes. Our Denver tax attorneys can advise you on any loan limits and interest rate minimums that are applicable.
Make an installment sale to your children.
Making an installment sale is another way to take advantage of low interest rates. This is one of those tax planning opportunities that applies to larger estates subject to the estate tax. Given the current state of the markets, you can remove assets from your estate while simultaneously benefitting your child.
Consider refinancing your debts.
Low interest rates provide another tax planning opportunity when it comes to paying off a mortgage or other debt. Refinancing can reduce your interest rates and monthly payments or allow you to consolidate various debts, among other things.
Explore Financial Planning Services Offered by Our Denver Tax Attorneys
The current state of the stock market may be cause for concern right now. However, you can make the most of this situation by planning for the future. Taking advantage of the tax planning opportunities listed above is one way to accomplish this. To learn more about these options, or to get started today, contact our financial planning attorneys. You can leave us a quick message online or give our office a call at (303) 625-6280.