Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Investors are advised to avoid selling if they want to avoid paying capital gains taxes, according to The Motley Fool. Clients who sell investments they owned for more than a year will not pay long-term capital gains taxes if they are in the 10% or 15% tax brackets, while those who sell securities they hold for less than a year are likely to face hefty capital gains taxes. Selling losing stocks to offset capital gains is highly recommended, while holding on to the assets until death is another strategy to avoid paying capital gains taxes. -- The Motley Fool
Investors will face higher taxes as many mutual funds have paid out taxable gains despite the funds' underperformance last year, according to The Wall Street Journal. These funds no longer have big losses that can offset the capital gains coming from the profit drawn when they are sold. The distributions indicate that actively managed funds are generally less tax-efficient than index funds and exchange-traded funds, says Dan Newhall, a principal at Vanguard Group. -- The Wall Street Journal
Taxpayers who receive a tax refund are advised to put the money in their IRA and other retirement accounts instead of using the extra cash on shopping, according to The Motley Fool. They may also contribute to a tax-advantaged account for their children's education using the refund. Spending the refund money on home improvements is another good option. -- The Motley Fool
Retirement investors can minimize their tax bill on their taxable accounts by investing in index-equity funds as they generate few taxable capital gains distributions, and also in individual stocks that allow them to pick the date to realize a capital gain, according to Kiplinger. They can also put a limit on their own trading and sell losing stocks to harvest a capital loss that will offset their gains. Selling and buying back appreciated securities is a good tax reduction strategy, while using the specific-share identification method for reporting cost basis on their investments is another option to trim down their tax burden. -- Kiplinger
A retiree who plans to downsize is advised to account for the tax issues when selling a house, according to The Los Angeles Times. They may pay considerable capital gains tax from the sale, while her heirs could face a tax basis that is equivalent to the house's value at the time of her death. -- The Los Angeles Times
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