Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Experts warn taxpayers that they should expect a hard time filing their returns this year as a result of the partial federal shutdown, according to this article on CNBC. While many are awaiting final regulations from the Treasury, a contingency plan for the tax-filing season has yet to be laid out from the IRS. With changes to paperwork like Form 1040, which has been trimmed to the size of a postcard, accountants suggest a closed line to government support could present the biggest obstacle. "It looks like getting the refund will no longer be the issue; now it's the lack of support you will get if you try to call — and it will be significant this year," a CPA says.
A market correction makes a good case for tax-loss harvesting, which allows investors to sell depreciated shares and use the losses to offset capital gains taxes, according to this article on Yahoo Finance. Although the strategy enables clients to reinvest the funds in a similar security and maintain the same exposure, the IRS has a "wash sale" rule which prohibits investors from rebuying the same security within 30 days. "The IRS has not provided a definition of what constitutes a ‘substantially identical’ security," according to Vanguard.
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The SEC is running on a skeleton crew that effectively halts routine oversight.
January 3 -
Clients who intend to file as soon as they receive their W-2s are advised to start gathering their documents.
January 8 -
Federal employees who retire during the partial government shutdown would have to wait a longer time to take retirement distributions from their savings plans.
January 14
Tax incentives for investors in Opportunity Zones created under the new tax law can encourage capital investment in less-developed communities if implemented correctly, writes Jared Bernstein, the former chief economist to Vice President Joe Biden, on The Washington Post. While it is too early to make an assessment, "we can examine some critical, early developments, including the zone certification process, market reactions and some early, proposed investment targets," Bernstein writes. "Such monitoring is essential if we want OZs to realize their potential to help left-behind places and people, vs. them turning into another wasteful, ineffective, place-based tax break."
Clients have some considerations to make before they contribute the maximum amount to their 401(k) plans, according to this article on U.S. News & World Report. For example, they may be better off contributing enough to get the employer's match or paying down high interest debt instead of maxing out 401(k) contributions. They should also consider other financial goals as well as tax savings, especially when they face a higher tax rate.
The following tips may help clients minimize their liability.
Clients are advised to prepare their tax returns as early as they can, as things can get complicated in the first year the new tax law is implemented, according to this article on Motley Fool. "For example, back when the standard deduction was much lower, filers generally knew whether they'd be itemizing on their returns or not," the article states. "But since the standard deduction nearly doubled for 2018, more filers are likely to find themselves in that gray area this year."
