When it comes to taxes, it can pay for clients to say ‘I don’t’: Tax Strategy Scan

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

When it comes to taxes, sometimes it pays to say ‘I don’t’
From a tax perspective, couples may be better off staying single than getting married because of the so-called marriage penalties in the tax code, according to this article in The Wall Street Journal. Filing as singles could mean bigger tax savings than when they file as married couples, especially for spouses who both earn an income. Contribution limits in a Roth IRA could also shrink for couples after getting married.

Want to flee high-tax states like New York? Turns out it's not so easy
Changes under the new tax law have prompted many residents in high-tax states to consider relocating to lower-tax states, but experts warn that this move will be as easy as people think, according to this article in Fox Business. That's because taxpayers will face the burden of proof of any change of domicile and the states can be very strict, says Geoffrey Weinstein of Cole Schotz. “It’s a very fact-sensitive analysis.”

The law now creates a different method of caring for relatives while preserving the family’s financial plan, a John Hancock associate counsel writes.
January 15
3 Min Read
Community property rules, how to divide 401(k)s and the nuances of QRDOs are just some of the specifics advisors should know.
January 10
7 Min Read
For example, taxpayers should not panic about the new cap on state and local tax deductions.
December 31
1 Min Read

Ways clients can use trusts to avoid state income tax
Wealthy clients should be mindful of the type of arrangement that they have in their trusts, as it could allow them to avoid state income tax liability, writes a Forbes contributor. "As an individual, it can be extremely challenging to establish domicile in a tax-free state and avoid being a statutory resident," writes the expert. "Accomplishing that with a trust requires professional expertise, but that can be hired and won't affect your day to day life."

5 tax pitfalls to avoid in a lofty market
Clients should think twice before rebalancing their portfolio in taxable accounts during a bullish market, as it could trigger a hefty tax bill, writes Morningstar's Christine Benz. Selling stocks could mean zero capital gains taxes for investors if their income is below a certain threshold. IRA investors should also consider the tax bite when doing a Roth conversion and it pays to switch from mutual funds to ETFs or index funds. Those who frequently donate to charity should integrate their charitable contributions into their portfolio maintenance.

Tax-efficient funds with best 10-year returns
The average expense ratio among the top-performers is 40 basis points higher than the average.

Charitable contributions won’t help clients get around SALT deduction limits
Several states passed legislation enabling their residents to evade the federal limits on state and local tax deductions under the new tax law by offering tax breaks for donations to state-run "charitable funds." However, the IRS blocks this "work around" policy, insisting that the amount of deductible charitable contributions should be reduced by the tax breaks that taxpayers receive for the donations.

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Tax planning Roth IRAs Income taxes Charitable deductions Trusts IRS Morningstar