Running Head: Tax Planning e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e 1
Milestone Three: Tax planning proposal and Strategic plan recommendation
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F. Tax Planning Proposal
A well-planned tax management approach must be in place that can help the client’s family to
save taxes in case the client dies. A number of strategies have been identified that can enable the
family to legitimately reduce the tax burden. Some of the main strategies are:
Estate planning – A well-defined estate planning must be in place that can help to create a
blueprint on how the client’s assets will be divided after his demise. Such a technique can help to
reduce the estate tax. The assets can be passed on to the family member each year in small
quantities when the client is still alive so that gift tax will not have to be incurred. A trust can be
established, which will be responsible for holding the assets. It can lower the tax amount for
individual taxpayers.
Making donations to charity – The client can make donations to the charity of his choice (such as
a 501 (c)3 organization so that the value of the estate can be reduced, which can further reduce the
associated tax burden (USA.Gov). As certain charitable donations are tax-deductible, it will help
in reducing the income tax liability of the family members after his death.
Retirement Accounts – In case the client has retirement accounts such as IRA (individual
retirement account) or 401(k), he can name his children as the beneficiary. Such a decision can
help reduce the tax on the specific account.
G. Strategic Plan
In order to effectively handle the estate, the client must create a will. A will refers to a legal
document that highlights how the assets of an individual will be distributed after his demise.
While making a will, some of the key elements that must be taken into consideration are
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identification of the assets, ascertainment of how the assets will be distributed among the
successors, appointment of an executor who will be responsible to ensure that the instructions in
the will are followed and regular updating of the will. ‘Wills’ play a cardinal role when it comes to
making wealth or asset transfers (Tilse et al., 2016). The will must contain details on how the
client will gift certain sections of his asset during his lifetime. Similarly, it must also capture his
decision to make charitable donations.
H. Recommended estate planning strategies
In the case of the client, the ideal estate planning strategies that have been identified include:
Charitable donations – A financially viable decision involves making charitable donations that
will help in decreasing the value of the estate and thereby help in minimizing the tax that will have
to be paid on it. Money must be given to the organizations that are identified as charitable
organizations by the Internal Revenue Service (IRS) so that the associated tax benefit can be
availed (Internal Revenue Service).
Gifting – Giving sections of the estate as a gift to the heirs is also a suitable strategic decision that
can help the client to manage the tax aspects. However, it is essential to make sure that the value
of the gift does not exceed $ 15,000, as if the money exceeds the threshold, it will be taxable.
I. Best course of action if the client leaves the business in three years
As the business entity type in the specific context is partnership business, an ideal course of action
for the client if he decides to leave the business in three years is gifting the business to his
daughter Mandy Jones. While gifting the business, there are several elements that need to be
considered by Bob, such as the value of the gift that will be sent each year, the gift tax that has to
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be paid by Bob, and other tax implications. As they both serve as partners in the business contest,
before leaving the business, Bob has to make sure that his assets are transferred to Mandy so that
she can be considered the rightful owner of the entire business. e e
J. e Best course of action if the client sells the business
In case the client decides to sell the business to a third party, the client must take into
consideration the tax consequences. As the sale will be considered a capital gain which is a
lumpsum amount, Bob will have to pay tax on the amount that he will receive from the buyer.
Instead of selling the entire business, he can decide to sell his portion of the partnership business
so that the value of the capital gains can be reduced and the taxable amount can get lower.
Reference
Exemption Requirements - 501(c)(3) Organizations | Internal Revenue Service. (n.d.).
https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-
requirements-501c3-organizations
Tilse, C., Wilson, J., White, B., Rosenman, L., Feeney, R., & Strub, T. (2016). Making and
changing wills: Prevalence, predictors, and triggers. Sage Open, 6(1),
2158244016631021.
USA.Gov. Donating to Charity | USAGov. (n.d.). https://www.usa.gov/donate-to-charity
