Tax breaks clients can use to support their parents: Tax Strategy Scan
Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
How to get tax breaks when you support your parents
Clients who shoulder more than 50% of the cost of supporting a parent are eligible for valuable tax breaks, as they claim their elder a dependent, according to this article in MarketWatch. Instead of filing as a single taxpayer, unmarried clients who cover over half of their parents' expenses are advised to use the head of household filing status to avail of wider tax brackets and a larger standard deduction.
Survival guide for pre-retirees
Pre-retirees must take crucial steps to curb the impact of a market downturn in the years leading up to retirement, according to this article from Morningstar. The first thing to do is to assess their overall financial standing, including their portfolio, tax issues and Social Security. Clients should also turbocharge their retirement savings, contributing aggressively to tax-sheltered vehicles such as IRAs, 401(k)s and health savings accounts. It also pays to hold more liquid assets in taxable accounts, as it helps in sequencing their withdrawals in retirement.
11 mistakes clients make in their 40s
Many clients in their 40s usually do not have a plan for their finances, according to this article from Yahoo Finance. Most of these clients also do not have an emergency fund and run the risk of using credit cards or dipping into their retirement savings that could trigger taxes and penalties. Being complacent about carrying credit card debt should also be avoided, as this could result in getting trapped in a vicious cycle of not paying off the balance and incurring interest charges.
Should clients use a 529 plan for elementary and high school?
Using funds from a 529 plan to cover elementary and high school tuition can be a smart move, as it enables parents to save taxes on school expenses, according to this Forbes article. However, such an option should not be used if parents are not expected to receive any state tax breaks. “Not only will this lead to state income tax on the earnings portion of the distribution, but it will also potentially lead to recapture of any state income tax breaks attributable to the distribution,” an expert says.
Clients are wary of U.S. stocks — here's how to act now
Some areas of real estate may provide better options for investors amidst rising downside risks in the global economy and markets, according to this article in TheStreet. "I think we are seeing multi-family [houses], offices, things that are being built new over the next ten years. You're seeing great opportunities," says a financial advisor. "People, if they're willing to part with their money for a bit, should really take advantage of this because you basically get growth, tax free, over the course of the next seven to ten years,"