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Refundable tax credit rules could tighten: Tax Strategy Scan

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Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

Rules for refundable tax credits could get tighter
The Trump administration's proposed 2018 budget plan would tighten requirements for taxpayers claiming the earned income tax credit and the child tax credit, according to CBS Moneywatch. Under the proposed rules, taxpayers should have a Social Security number and have secured a permit to work legally in the country. Critics slam the proposed rules, saying they would prevent low-income immigrants from claiming these refundable tax breaks.

Sharing economy: Before you rent that room, brush up on tax pointers
Taxpayers are advised to know the tax implications of earning income from taking a part-time or full-time job in a gig economy, according to this USA Today article. Income from the gig economy is usually taxed, and they entitled to tax deductions for business-related expenses, such as repairs, insurance and advertising. Those who collect rental income from their real estate property may no longer qualify for capital gain exclusion when selling the property.

How to pay less in taxes on your clients’ investments
Taxpayers may acquire short-term capital gains without having to pay higher taxes. By selling “loser stocks” and trading in broad-based stock index options, they can create capital losses, according to MarketWatch. Broad-based stock index options prevent investors from making a long-term commitment as they pay a lower tax rate on their gains and allow offsetting of net gains in earlier years by carrying back the net loss for three years. Trading in such options, which can be found through software such as Tradelog, entail selling of open positions at their year-end market prices and including losses and gains on that year's tax return.

If your clients pay the alternative minimum tax, these funds can help lower their tax liability.
March 29

Five myths about 529 plans debunked
Clients who contribute to a 529 college savings plan may have slightly reduced need-based aid but enhanced flexibility in their children’s college choices and reduced debt, according to Telegram & Gazette. Contributions in a 529 plan may also be used at any college or university qualified for Title IV federal student aid, even those outside the U.S. They can offer good returns as such plans have an S&P 500 investing option that will resemble overall stock market performance. Aside from tuition, clients can also use money in a 529 plan for books, supplies, equipment and special-needs services. They can also replace the plan’s beneficiary should the original beneficiary decide not to go to college.

Americans are taking their sweet time paying taxes, and the government is running out of cash
Proposed tax cuts have prompted many wealthy families and business owners to use strategies that enable them to defer tax payments, resulting in a cash shortfall that pushes the federal government to breach its debt ceiling, according to this Washington Post article. “Investors are hopeful that tax rates will go down next year, and that the net investment income tax will go away,” an expert says.

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