Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Clients may want to contribute to a Roth IRA and a Health Savings Account for tax free income, according to the Motley Fool. Selling a home may not trigger a capital gains tax because of the exemption amounting to $250,000 for singles and $500,000 for joint filers. Investors can choose municipal bonds for tax-free yields and hold their stocks for the long term, as no capital gains tax will be charged for those in the 10% or15% tax bracket. Homeowners will not pay tax on income from renting out their property, while those who receive a cash gift from family members will not face any tax liability. -- Motley Fool
Tax filers should avoid making costly mistakes, such as missing the April deadline and providing the wrong Social Security number, according to NerdWallet. Many taxpayers also make the mistakes of misspelling their name, making math errors, giving the wrong bank account details, and not signing their return before filing it. Other errors that taxpayers should avoid are sending their return to the wrong address, and not sending the supporting tax documents together with their return. -- NerdWallet
Financial advisers should recommend to clients over the age 70 1/2 to make a qualified charitable distribution to reduce their taxable income, according to The Wall Street Journal. The option, which was made permanent last year, allows qualified retirees to make up to $100,000 donation directly from their IRA to a charity of their choice. The donation will be counted towards their required minimum distribution and will be excluded from their taxable income. Retirees can save up to 40% depending on their tax situation. -- The Wall Street Journal
One of the misconceptions about exchange-traded funds is that the funds are meant only for short-term trading, according to Fox Business. ETFs can be building blocks of an investment portfolio for the long term, as they are low-cost funds that provide broader diversification and better tax efficiency. While ETFs can be used as vehicles for short-term trading, ETF shareholders will not be affected by the trading activity, unlike with traditional mutual funds.
To earn an income without paying taxes, clients may want to contribute to a Roth IRA and a Health Savings Account, according to the Motley Fool. Selling a home may not trigger a capital gains tax because of the exemption amounting to $250,000 for singles and $500,000 for joint filers. Investors can choose municipal bonds for tax-free yields and hold their stocks for the long term, as no capital gains tax will be charged for those in the 10% or15% tax bracket. Homeowners will not pay tax on income from renting out their property, while those who receive a cash gift from family members will not face any tax liability. -- Motley Fool
Although interest rates are at historical lows, many investors are still drawn to government bonds for better investment returns, according to Bloomberg. Government bonds issued to fund roads and other critical infrastructure perform better than state and local government debt, with data showing that toll and turnpike bonds returned 89% compared with 74% returned by municipal securities. The after-tax returns from Standard & Poor's index of U.S. stocks stand at 87% for investors in the lowest 28% tax bracket, but the tax benefits from infrastructure bonds are actually bigger because most of the clients who invest in these tax-exempt bonds are in the higher 35% tax bracket.
