How to plan for next year’s tax changes: Tax Strategy Scan
Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Tax changes are coming next year, but clients can plan now
Many tax deductions are likely to disappear if Congress passes the tax reform bill into law, according to this article from the New York Times. “The loss of some of the deductions will go a long way toward tax simplification but not necessarily toward tax savings,” an expert says, adding that “[i]t’s going to be easier to figure out how much more you’re going to have to pay.” Paying property taxes, prepaying state taxes and making big charitable donations are some of the options that clients should consider doing by the year's end to make the most of these tax breaks before they are gone.
Tax-gain harvesting can be a valuable strategy for new retirees
Investors in the lower 15% tax bracket stand to benefit from selling appreciated shares, writes Morningstar's Christine Benz. That's because these investors will face a 0% tax rate on long-term capital gains, she adds. "New retirees who are able to keep their incomes down because they're not working and not yet subject to RMDs are prime candidates for this type of tax-gain harvesting," Benz writes.
Saving too much for retirement could force clients to take loans or make withdrawals that would carry taxes and penalties.September 26
The IRS is relaxing some rules to make pulling money from retirement plans easier after hurricanes Irma and Harvey, but clients should remember the taxes and penalties associated with withdrawals are unchanged,September 14
The potential tax hit when high earners convert to a Roth IRA
Clients have the option of transferring some of their 401(k) assets into a traditional IRA and will incur a tax liability if they convert the funds into a Roth IRA, according to this article on Kiplinger. Those who do a Roth IRA conversion will owe nothing to IRS if they make nondeductible contributions to their traditional IRA, have no deductible contributions in the account, and earn on the savings before the conversion.
Here’s how the IRS will tax clients on investment profits
Clients can reduce the tax bite on their investment profits by holding their assets for more than a year, so the sale proceeds will be subject to long-term capital gains tax rates, an expert from the Legal Examiner writes. Capital gains from investments held in less than a year are subject to short-term tax rates, which are higher than the long-term rates, the expert adds. Investors can also lower their tax burden by holding their assets in a tax-deferred account, and by selling losing assets and using the losses to write off taxable gains.
7 investing moves clients still need to make this year
As the year ends, investors should consider maximizing the benefits of their tax-sheltered investment accounts, such as 401(k)s, IRAs and HSAs, according to this article from Money. Clients sitting on losing investments are advised to harvest losses that to offset taxable gains, as well as make changes to their portfolio to revert to their original asset allocation. An expert reminds investors "that the best way to rebalance is the most tax-efficient way."