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How will the new tax laws affect you?

The end of the year brought with it a new law that may change the tax field for years to come: the American Taxpayer Relief Act. Many financial experts have weighed in on the potential effects of this act and agreed that tax planning may never be the same again. Many elderly individuals in Massachusetts are wondering what they should do to protect their assets, especially those that own businesses and want to pass them on to their loved ones without the government getting too large of a bite.

Tax brackets have changed for individuals and businesses, affecting decisions on many levels. For those that have a business that is an S Corporation or an LLC, both with pass-through tax statuses, the former advantage may not be as stellar as it once was. Some are reexamining the option of becoming a C Corporation due to the tax benefits that are received by such entities. One of these benefits is a lower taxation rate than the highest personal level of 39.6 percent. C Corporations have a taxation rate of 35 percent, nearly five points lower than the aforementioned rate.

But what about estate taxes? Many business owners have high personal values because of the income they have received due to their thriving businesses. As these people age, they get concerned about their estate tax exemptions and the massive taxation rates that are applicable to those that exceed the exemptions. Currently, tax law gives individuals a personal exemption of $5.25 million and couples $10.5 million. This means that any assets and wealth that exceeds this amount is open to taxation by the federal government.

Those that exceed the exemptions may be exposed to a 40-percent tax rate that could leave their estates feeling slightly depleted. But there are many ways to avoid this taxation and those that are worried should attempt to implement such protections.

Source: Forbes, "Trends In Tax Planning From The New Tax Law," Steve Parrish, Feb. 13, 2013

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