Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Dividend-paying investments may outperform non-dividend portfolios but they can be a burden at tax time because the earnings are considered taxable income, according to Motley Fool. The amount of tax to be paid for dividend income depends on the dividend tax rate associated to the overall income of the taxpayer. For dividend-paying investments placed in retirement accounts, one should note that the taxes are assessed when contributions are withdrawn and the rates may be higher compared to dividends placed in taxable accounts. -- Motley Fool
Clients who consider selling a mutual fund and putting the sale proceeds to a Roth IRA need to know the applicable taxation rules, according to MarketWatch. A capital gain or loss is determined by comparing the sale with the cost basis of the shares sold, and would be classified as long-term if the shares were held for more than a year. Clients have to decide on how the sale proceeds will be accounted for in calculating a capital gain or loss in their household's 1040 since the default settings of the company that holds the shares may not be beneficial to them. -- MarketWatch
As a "tradable" financial instrument used to lower risk with hedging strategies, taxation could be complicated especially if it involves complex trades with offsetting positions, according to Forbes. While tax treatment for outright option trades can be straightforward, taxation for complex trades trigger several IRS rules aimed at stopping taxpayers from avoiding tax payments. Since options are derivatives of equities, ETFs and other underlying financial instruments, one way to determine the applicable tax treatment for an option is to identify the tax treatment for its underlying financial instrument. -- Forbes
The answer: Favorable tax law makes life insurance tax-free, according to the Naples Daily News. Three little-known strategies to enrich your heirs, while avoiding the estate tax monster. -- Naples Daily News