Our weekly roundup of tax-related investment strategies and news your clients are thinking about.
In addition to the Child Tax Credit, clients can also take advantage of another child-related tax benefit if they hire their children in their business, according to Forbes. By employing their kids, parents can reduce their business' taxable income since the children's wages are tax-deductible. But don't let them work overtime. Annual income greater than $6,300 is not exempt from taxes. -- Forbes
Clients racking up education bills this year have two options to offset those costs on their tax returns: the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LCC), according to The Cincinnati Enquirer. Clients qualify to get one or both of these tax breaks if the expenses were for the taxpayers themselves, their spouse or a child. Education expenses qualified for the AOTC include tuition, fees and other related costs, while only tuition and other enrollment fees are eligible for the LLC. -- The Cincinnati Enquirer
Market valuations are high and to get better returns, clients may need to look for more tax-efficient portfolio strategies. This is particularly true for clients still in the accumulation phase of their lives, writes Christine Benz, Morningstar's director of personal finance. Clients can minimize their trading in their portfolio for lower taxable capital gains distributions and also look for stock funds with patient, low-turnover strategies, Benz writes. "Exchange-traded funds, index funds, and tax-managed funds all tend to have very low turnover and, in turn, do a good job reducing the tax collector's cut of their portfolios' returns." -- Morningstar
Variable annuities are subject to tax rules that also apply to fixed annuities, but the earnings from investment choices are tax deferred, Barbara E. Weltman writes on Investopedia. Taxes on the earnings are paid when annuity holders start collecting payments or opt to take distributions before the annuity's starting date. Payments or distributions received before the starting date will consist of a tax-free portion and earnings which are to be taxed as an ordinary income. -- Investopedia
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