Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Although taxpayers in high-income groups are affected by the net investment income tax, which is a 3.8% Medicare surtax on investment income, those who experience a windfall may also be subject to the tax, according to MarketWatch. This one-time gain or income may be profit from a sale of company stock or a property. Read the strategies that will help taxpayers avoid or reduce their exposure to the Medicare surtax. -- MarketWatch
An advisor tells a client to revamp the $2 million portfolio of telecom stocks she inherited from her husband to reduce the risk but selling the stocks could trigger hefty capital-gains taxes, according to The Wall Street Journal. To avoid the tax and meet the client's desire to use the portfolio as a source of lifetime income with a portion left for her daughter and favorite charity, the advisor put $1 million in a charitable remainder trust and used the remaining amount to hold a portfolio of stocks and bonds. The advisor also told the client to put the investment income to a life insurance policy with her daughter as beneficiary. -- The Wall Street Journal
Now that the 2014 tax filing season has officially closed, clients may review their tax returns and gain insights on how they can upgrade their finances this year, according to this article on Kiplinger. When checking their returns, taxpayers will find that their mutual funds may have boosted their taxes, they may need to switch to an online savings account that offers a bigger interest rate, and their tax burden could be reduced significantly by making retirement contributions. Also clients will realize that medical deductions will be easier with a health-savings account, making charitable donations can reduce the tax bill, and skipping health insurance can be costly. -- Kiplinger
Wealthy art collectors use tax breaks such as the so-called 1031 exchanges in order to defer their capital gains from the sale of their artwork collectibles, according to Bloomberg. The tax code allows art investors to roll in profits from art sales without immediately paying taxes by buying more artwork or any similar property of equal value. As an example, Stefan Edlis paid zero taxes when he sold his Andy Warhol painting for $80 million eight years ago. Edlis received a tax exemption for half of the sale's proceeds while the other $40 million was used to acquire more artworks. -- Bloomberg
The Obama administration is considering scrapping a tax break that allows people to swap property and defer paying the capital gains tax on the proceeds, stirring a concern among artists and wealthy art enthusiasts, according to The New York Times. "In these days of concern over income inequality and trying to spread the burden progressively, this particular provision especially applied to art would provide a big bang for its buck," says Steven M. Rosenthal of the Urban-Brookings Tax Policy Center. -- The New York Times