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Start now to save clients on 2019 taxes: Tax Strategy Scan

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

Save money on your 2019 taxes by starting now
Clients who want to see a reduction in their tax bill next year should start planning as they will need time to make changes to avoid a big tax bite, according to this article from The Washington Post. "There are relatively few ways to impact a person’s tax return after the tax year has ended," according to a financial advisor. "The IRS permits traditional IRA and health savings account (HSA) contributions up until April 15 of the following year. Self-employed individuals on extension can make simplified employee pension (SEP) plan contributions up until Oct. 15 of the following year."

Why clients need to spring clean their portfolio
The spring can be a good time for investors to rebalance their portfolio, as the tax returns they filed in April may offer insights as to how they can reduce the tax bite on their income, according to this article on U.S. News & World Report. Clients with higher marginal tax rates may want to shift to municipal bonds or move taxable investments to tax-advantaged accounts, an expert says. "Tax inefficient mutual funds can generate short-term capital gains which are classified as ordinary dividends. If the dividend income is not needed for cash flow, an investor may consider a more tax efficient investment portfolio or locating the tax inefficient fund in a retirement account."

Trump tax cuts helped wealthy clients in GOP states the most
The richest households in GOP states could see a higher increase in the remaining lifetime spending under the new tax law than those in Democrat states, a study by the Federal Reserve Bank of Atlanta, University of California, Berkeley and Boston University finds, according to this article on CNBC. The tax overhaul made drastic changes to the tax code, including the $10,000 cap on state and local tax deductions. “If changes to SALT had not occurred, the gains in spending would have been very similar for the top 10 percent regardless of state,” a researcher said.

Tax strategies that could simplify divorce settlements
Married couples who are filing for divorce should consider the tax ramifications of their decisions, according to this article on The New York Times. That's because some of the tax benefits for divorcing couples are no longer available thanks to the changes under the new tax law. For example, they can no longer get the tax break for alimony payments. To avoid the tax bite, parties can make the alimony payments through a trust.

What some clients tried to claim on their tax returns shows they often don't know much about accounting.
February 5

3 ways to legally get out of paying taxes in retirement
Clients who want to avoid taxes in retirement should consider contributing to a Roth IRA or Roth 401(k), according to this article on Yahoo Finance. These accounts are funded with aftertax dollars in exchange for tax-free distributions in retirement. They also have the option of investing in municipal bonds, which offer tax-free yields, or sell investments after holding on to them for at least a year to minimize the taxes on capital gains.

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