Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Clients are likely to face thousands of dollars more in taxes once they are subject to alternative minimum tax, according to Motley Fool. The AMT is a separate tax system designed to make the wealthiest taxpayers pay their fair share of taxes on their investments. However, even many middle-class households are now placed under the AMT, so it is important that investors know the rules to avoid the AMT and prevent an increase in their tax bill.
In general, taxpayers have to hold onto their tax returns and supporting documents for at least three years after filing, although it is safe to keep them for up to seven years before sending them to the shredder, Morningstar reports. Clients who made nondeductible contributions to a traditional IRA should secure the transaction to avoid being taxed again on the funds, while those who opt for an itemized deduction should ensure that they have the receipts and other forms to justify the claims.
Tax columnists George Jones and Mark Luscombe of Wolters Kluwer put together a list of important changes from this year that will carry over into the next.
Older clients should consider contributing to a Roth IRA to achieve tax diversification in their retirement portfolio, according to this article from the Cincinnati Enquirer. Unlike a traditional IRA, contributions to a Roth IRA are after-tax, so distributions are not taxable. Also, Roth IRAs are not subject to required minimum distributions that could force clients to draw retirement funds and trigger tax liability.
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When a tax-deferred account is part of an estate, failure to follow the tax rules correctly can result in a financial disaster.
February 17 -
It's not too late to help clients improve their tax situation for 2016 and beyond.
December 28 -
There's no point in waiting on new policy to initiate preparation that is protective and vital, no matter what the ultimate law may be.
March 2
Clients cannot claim the entire balance in their traditional IRAs, as they will owe taxes when upon any withdrawals, according to this CNBC article. As such, advisers tell their clients to set up a Roth IRA, which offers tax-free withdrawals in retirement. "Say you're at that 24% - 25% tax bracket; all those dollars belong to you," an expert says. "Whereas in a [regular] IRA, nearly one-third of that is going to go to the government. Once that is explained appropriately to a client, the light bulb goes off."
Parents are eligible to claim certain tax breaks for having a new baby in the family, according to Kiplinger. These tax breaks are the child tax credit, dependency exemption and a bigger standard deduction for filing as head of the household. These clients may also reimburse up to $13,460 in expenses for adopting a child.
