Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Contrary to what some experts think, capital-gains taxes should not be reduced to boost business investments, a Bloomberg expert writes. An economist found that the dividend tax rate cuts in 2003 had no impact on the capital spending of C-corporations, which are subject to these taxes, and S-corporations, which are not, the expert writes. "[I]n other words, companies ignored tax rates when making their investment plans."
Allocating taxable money in active equity funds can be a wrong investing move, a Morningstar CFA writes. "Most active stock funds won’t beat a comparable index fund or exchange-traded fund after taxes," the expert writes. "Why? Competition (that is, it's tough to beat the index even before fees), costs, and taxes."
Despite the tax law changes, long-term municipal bonds remain attractive to investors, as these bonds can provide better after-tax returns compared with corporate bonds and other investments, according to this article on Barron's. Because of the capping of state and local tax deductions under the new tax law, demand for muni bonds in high-tax states has increased, as muni yields are not subject to state and local taxes. "An in-state, fully tax-free 3% muni is equivalent to a fully taxable one yielding 6.19% for a high-income New York City married couple facing an overall 51.53% marginal tax rate," according to the article.
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Gearing up for tax season? Here are two things to consider when planning for your wealthy clients.
January 21 -
There is nothing simple about taxes. Combining taxation in dozens of countries with that of the United States brings even greater complexity.
May 15 -
For a high-income individual taking an unexpected hit, a Roth IRA conversion can be a smart solution.
February 18
Entrepreneurs are advised to consult their tax advisor to explore the possibility of assuming a self-employed entity, S-corp, C-corp or partnership, an expert on Entrepreneur writes. That's because having the right entity setup could mean significant tax savings under the new law, explains the expert. "The biggest tax changes in the new law for small business owners are the lower corporate tax rate of 21% and a potential 20% pass-through deduction that starts in 2018 for self-employed, sole proprietors, partnerships and S corporations."
A majority of affluent Americans are likely to adjust their financial plans under the new law, according to the AICPA. Here's how advisors can help.
Retirees should consider hiring a tax specialist if they live overseas and hold a foreign bank account, according to this article on CNBC. That's because failure to report all income, including funds held in a foreign bank account, could trigger hefty penalties from the IRS. "In people's heads, they want to keep it secret," an expert says. However, "when you're a U.S. citizen, you pay tax on your worldwide income. It's all about disclosure."
