Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Indexing 2.0 is an investing strategy that is more tax efficient compared with holding index funds, according to the Wall Street Journal. Investors who rely on this approach have all or most of their stocks comprise an index to allow manageable losses that can be used to offset other gains, which they cannot do with losses from index funds. Although the strategy can help minimize taxable gains, it is not meant for all investors. -- Wall Street Journal
Investing in a taxable account is a sensible option because it is very flexible and compounding is nearly tax-free with careful planning, according to Morningstar. With a taxable account, clients may use tax losses from the account to lower their tax burden and have no- or low-tax withdrawals. Also, they can control their taxes in retirement and their heirs can take advantage of a step-up in cost basis. -- Morningstar
Taxpayers need to separate their short-term capital gains from long-term gains, since the tax rates for the two are different, according to MarketWatch. Short-term capital gains are subject to as high as 39.6% rate, while tax rate for long-term gains are much lower. Capital gains are long-term if the sold investments were held for more than a year. Know what to do under the existing rules to lower the capital gains tax. -- MarketWatch
Taxpayers will increase their understanding of the tax implications on their investments if they prepare their own tax returns, according to U.S. News & World Report. By preparing their own taxes, clients also appreciate the benefits of tax-advantaged accounts and get inspired to refinance their home mortgage. They are also likely to drop any misconceptions about the tax code and value their possessions more. -- U.S. News & World Report
Taxpayers may owe the Internal Revenue Service money if they earn business income, gains from selling investments, or the amount withheld from their salaries are not enough to cover their tax burden, according to the Motley Fool. Taxpayers may also end up owing the agency an amount if they have two or more jobs, since their incomes from these jobs could move them to a higher tax bracket and subsequently bigger tax liability. If this happens, taxpayers may pay the agency right away after they are notified or opt for a pay-it-later plan. -- Motley Fool
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