Tax planning is one of the things the changing economy has affected heavily. Here are a few thoughts on the direction things may take for business professionals…
As real estate values bounce back, real estate owners may diversify their holdings. Selling real estate dictates that owners consider tax deferral techniques. SKO expects increasing turns to tax-deferred like kind exchanges, including sophisticated techniques involving statutory trusts, tenant in common structures, build-to-suit transactions, and land banking structures. Clients may also be surprised by how much planning they will engage in to avoid new taxes implemented as part of the Affordable Care Act.
Since the ‘90s, the federal government has engaged in a relentless campaign to outlaw aggressive federal tax planning. Sophisticated tax planning at the state and local levels is a growth industry. SKO has built a state tax practice that is ideally positioned to take advantage of sophisticated state and local tax planning in Kentucky and neighboring states in order to get the maximum benefit of the individual.
Nobody works forever. Our aging population demands business professionals make succession plans. SKO has participated in an increasing number of business succession plans by which the owners favorably sell their ownership interest to an Employee Stock Ownership Plan (ESOP) for the benefit of the employees. In addition to insuring the shareholder s’ legacy, the transaction allows the owner to avoid the ordinary income typically recognized in an asset sale. The S corporation owned by an ESOP is a tax-exempt structure giving the business significant advantages in the future.
Trusts remain one of the most flexible tools available for tax planning. Tax law treats grantor trusts differently for income tax purposes than for estate and gift tax purposes. Increasingly individuals will likely want to capitalize upon this difference in treatment to maximize tax savings in concert with the client’s succession and estate planning. SKO’s Trusts, Estates and Family Law practice is uniquely experienced in implementing plans to maximize asset protection and minimize taxes through use of grantor trusts.
The new economy has erased most borders. As clients move to export more goods, they will want to lock in the favorable tax treatment afforded exporters. It is likely that business people exporting products may want to incorporate the tax advantages of the Interest Charge Domestic International Sales Corporation (IC-DISC) into their operations.
Amending Tax Planning Mistakes
Historically, mistakes and oversights could lead to devastating, unproductive tax consequences for clients. The government has developed programs to amend these typically unjustified consequences, including programs to fix retirement plans, report unreported foreign accounts, and to change the characterization of independent contractors to employees. It’s likely many professionals will seek the certainty of results these programs provide.