Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
For taxpayers who will be better off itemizing deductions on their 2018 tax returns, donating so-called complex assets is an option worth considering to save on taxes, according to this CNBC article. These assets include those types that are not for public trading, such as private shares, real estate, antique furniture and prehistoric fossil. "If you have stuff in your house you can't wait to get rid of, you think it's the most valuable thing in the world," a CPA says.
Clients should consider converting traditional IRA assets into a Roth if they think their tax rate will be higher in retirement, according to a Morningstar expert. That's because a Roth conversion triggers a taxable event, but withdrawals in retirement will be tax-free. "[I]f you could pay taxes now at a lower rate and avoid a higher tax rate in the future, the Roth might make sense because that's the way that the Roth works in taxation."
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Clients are willing to pay more for tax advice, but they’re still not getting it.
October 24 -
Recent tax laws added complexitynot to mention sticker shockto clients tax obligations. But with smart planning, you can alleviate some of the pain.
November 3 -
You’ll probably find administrators blocking the backdoor Roth IRA strategy more than anyone else, says Kimberly Foss, planner, author and Financial Planning contributor. That’s when you’ll have to adopt the role of educator, she says.
October 18
Clients are advised to hold assets in different accounts to achieve tax diversification in their portfolio, the Journal-Advocate reports. These accounts are subject to different tax treatments that will give them more savings, tax-advantaged growth and greater flexibility when they start taking distributions in retirement. For example, clients with higher tax rates should consider contributing to a tax-deferred traditional IRA, while those who will move to a higher tax bracket in the future should make aftertax contributions to a Roth account.
Clients who consider selling inherited stocks may face a tax bill depending on the location of these investments, according to Motley Fool. They will owe no capital gains taxes from the proceeds if the stocks are held in a Roth account. They will owe income taxes if the inherited stocks are parked in a traditional retirement account. For stocks held in a taxable brokerage account, the gains will be computed based on the investments' cost basis at the time of the original owner's death.
What some clients tried to claim on their tax returns shows they often don't know much about accounting.
Small business owners who are averse to taxes should consider contributing to retirement plans, according to this article on Kiplinger. Pretax contributions can help lower taxable income, which could allow them to qualify for the new 20% tax break on pass-through income. Small-business owners can also minimize the tax bite by hiring family members, renting their homes for business activities, changing their business structure to an S corporation. In some cases, a C corporation can provide more tax-saving opportunities, such as tax-free fringe benefits.
