Our weekly roundup of tax-related investment strategies and news clients may be thinking about.
The worst winning strategy: Some investments with higher returns will also come with higher tax bills, according to Motley Fool. For example, clients may be better off with a buy-and-hold strategy that guarantees a 14% return annually over two decades than a trading strategy that produces a guaranteed 20% return over the same period. It's because returns generated by a buy-and-hold strategy are subject to a lower rate compared with those from the trading strategy. -- Motley Fool
Save taxes by being a tax contrarian: Clients may need to drop their old tax strategies to maximize their tax savings. For example, they will be better off forgoing a tax deduction and paying taxes upfront, as with a Roth 401(k), as it will enable them to take tax-free withdrawals in retirement, according toForbes. They need to understand that tax planning is more than the tax savings they can achieve today. The also should also aim for tax diversification. -- Forbes
Planning for your client's estate? Use stocks, not bonds: The arithmetic of bonds doesn't always add up for estate planning, according to The Dallas Morning News. This analysis looks at how the income from bonds begins to lose steam over time, and makes comparisons to building stock portfolios with the same yields. These portfolios enjoy a dividend that's taxed at a lower rate for 20 years. -- The Dallas Morning News
What's on deck for your client's investments: While dividend and capital gains rates are to remain unchanged this year, clients need to know that the income tax brackets on which those rates will be based have been adjusted to inflation, according to Morningstar. Taxpayers can also claim a higher Saver's Credit if they receive a lower income, with the credit capped at $1,000 for single filers and $2,000 for joint filers. Also, tax breaks for health savings accounts and college savings plan contributions will continue, while the income thresholds for the Medicare surtax and the annual gift tax exclusion will not change, except for the estate tax exclusion amount, which will increase to $5.45 million. -- Morningstar
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