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Avoiding a big tax bill in the year of M&A: Tax Strategy Scan

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

How to avoid a big tax bill in the year of M&A
M&A won't trigger a tax bill if the IRS considers the deal to be a tax-free reorganization or the shares are held in tax-advantaged retirement accounts, according to this article in The Wall Street Journal. Clients won't also face a tax bill as a result of an M&A deal if they hold the shares in ETFs or index mutual funds. Only investors with shares of target companies in taxable accounts are likely to owe taxes to the IRS.

While many clients are awaiting final regulations from the Treasury, a contingency plan for the tax-filing season has yet to be laid out from the IRS.
A pedestrian walks past the Internal Revenue Service (IRS) headquarters in Washington, D.C., U.S., on Tuesday, Jan. 8, 2019. The IRS will issue refunds to taxpayers even if the U.S. government shutdown extends into the filing season, a decision that may reduce political pressure on Congress and President Donald Trump to reach a deal to reopen the federal government. Photographer: Andrew Harrer/Bloomberg

HNW clients more likely to get heftier refunds under new tax law
Wealthier households saw an increase in tax refunds under the new law, according to data from the IRS in this MarketWatch article. Although the overall tax refund dropped since the overhaul, refunds for households with adjusted gross incomes between $250,000 and $500,000 jumped to $14.6 billion this year from $10.6 billion in 2018. Tax refunds for those who reported an AGI between $500,000 and $1 million also increased to $6.1 billion this year from last year's $5.2 billion.

6 summertime uses for this tax-favored savings account
Making pretax contributions to a flexible spending account is one way to help clients save this summer, according to this article in CNBC. An FSA can help reduce the tax obligation on several expenses, including qualified medical expenses, skin care products, sunglasses and even travel expenses. They should make sure to use all their FSA funds before the end of the year, or they will lose it next year.

37 states that don't tax Social Security benefits
Alaska, Florida and Texas are among the 37 states that don't impose an income tax on Social Security benefits, according to this Motley Fool article. However, retired clients in these states will still owe federal income taxes on a portion of their retirement benefits if their provisional income, which is all their earnings from other sources plus 50% of their benefits, exceeds a certain threshold. For example, up to 50% of the benefits will be taxed if their provisional income is between $25,000 and $34,000 (single tax filers) or between $32,000 and $44,000 (joint filers).

The average expense ratio among the top-performers is 40 basis points higher than the average.
April 9

It's time to fix Social Security's tax burden
Retired clients deserve a tax relief on their Social Security benefits, writes NerdWallet's Liz Weston in Fox Business. That's because the tax thresholds for retirement benefits are not indexed to inflation, she writes. "Not indexing to inflation is a sneaky way of boosting taxes. Lawmakers can count on growing federal revenue without the politically uncomfortable act of repeatedly voting for those increases."

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