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Will new kiddie tax rules save clients money? Tax Strategy Scan

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

Will the new kiddie tax rules save your clients' money?
The new tax law makes significant changes to the kiddie tax rules that would allow children and their parents to boost their tax savings, according to this article on Motley Fool. Tax Cuts and Jobs Act has scrapped taxes on a child's excess unearned income at the same rate as the parents. High-income taxpayers stand to gain from the new rules, as they can increase their investments in their children's account at lower rates. “The most important is that you can't simply give kids property and then take it back, or you'll be treated as having made the transfers solely to avoid taxes,” an expert writes. “In other words, you have to be willing to give your kids actual property in order to use the strategy correctly.”


White Americans gain the most from Trump’s tax cuts, a report finds
A new report finds that tax cuts under the new law are more beneficial to white Americans than to African Americans and Latinos, according to The New York Times. Analysis from the Institute on Taxation and Economic Policy and nonprofit Prosperity Now found that white Americans gain nearly 80% of the benefits under the new tax law, with African-Americans receiving about 5% of the benefits and Latinos about 7%. This means that white Americans will gain $218 billion while blacks and Latinos will receive about $32 billion in tax cuts this year.

Gray divorces and tax changes complicate retirement
The home and retirement accounts are the two most important assets for couples who are heading for divorce, according to this article on U.S. News & World Report. Because of the new law, alimony is no longer tax deductible for the party making the payment and the recipient is not required to report the money as part of taxable income. Spouses should consider taxes when seeking a share from retirement and investment accounts. "If I ask if you would rather have $1 million in cash or $1.5 in a brokerage account. You'd say, I’d rather have $1.5 million. But if there are embedded capital gains, the real value could be $800,000," says an expert.

Ways for clients to shield their children from tax burdens
One way for parents to protect their children from tax liability is to set up a 529 college savings plan for them, according to Yahoo Finance. Contributions can be tax deductible in several states and withdrawals will be tax-free if used for qualified education expenses. Parents should also set up a tax-advantaged retirement account for their children and take advantage of the "step-up in basis" by leaving behind a property to their children as a legacy after death.

The IRS estimates alternative minimum tax filings will decrease to 1 million from 10 million as a result of the law.
September 21

7 smart tax maneuvers in a (still-) lofty market
The bull market result in greater stock allocation in investment portfolio, meaning investors owe substantial taxes on the appreciated securities, according to Morningstar. To reduce the tax bill and avoid paying more than they should in taxes, investors should consider tax-saving strategies, such as tax-loss harvesting to offset capital gains. Another strategy is tax-gain harvesting, which is selling shares that increased in value when they are in the 0% tax bracket and will owe no taxes on the sale proceeds.

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