Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Will the tax law lead to growth or inflation?
While the new tax law would spur productivity and further economic growth, the overhaul could result in inflation and higher interest rates, a JP Morgan Asset Management expert says in this article on Morningstar. According to Karen Ward, the firm’s chief marketing strategist for EMEA, clients should pay attention to job figures in order to gauge the impact of the law. "We saw wage growth pick up one month to 2.9%, just a 0.3 percentage point increase, pretty modest, still low by historical standards,” Ward says. “At the same time the U.S. 10-year rose 30 basis points, the equity market was down 10%."
Strategies to avoid the AMT under the new tax law
Clients are less likely to be subject to the alternative minimum tax this year thanks to the changes under the new tax law, according to MarketWatch. To further reduce the odds of owing the AMT altogether or minimize the tax bite, taxpayers should weigh options before prepaying state and local taxes, consider spreading out ISO exercises over several years and avoid private activity bonds.
More states are creating tax-advantaged savings accounts for first-time home buyers
Many states are offering tax-advantaged savings accounts for clients who are buying a home for the first time, according to this article on CNBC. The tax benefits vary among these accounts. "The accounts are designed to provide renters with a tax-advantaged opportunity to save for their down payment," an analyst says. "In some states, it's not just for first-time buyers, but for those who haven't owned a home in a number of years."
Financial planning for the self-employed: Helping millennials succeed
Advisors who want to offer their expertise to self-employed millennials are advised to build good relationships with these clients, according to Investor's Business Daily. Young self-employed individuals may need comprehensive financial planning as they see their assets grow, states this article. Advisors may recommend their sole proprietor clients to shift to retirement savings accounts, such as a SEP IRA or solo 401(k) to take advantage of the tax benefits.
Opinion: 3 options for managing capital gains taxes
Clients who saw a single stock appreciated considerably may want to sell the investment, but this could trigger a big tax bill on capital gains, a CFP writes at the Springfield Business Journal. They may opt to "[s]ell enough shares of the stock to 'correctly' diversify and pay significant tax" or "[w]ork with a tax professional to 'crawl out' of that holding over time," the expert writes. They also have the option to "[h]old on to the stock and earmark it for heirs to receive 'stepped-up basis,' a fresh starting value upon which future taxable gains build."