Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Realizing capital gains can be a good strategy for retired clients to get preferential tax rates, but it could backfire by boosting their income and subsequently subjecting a bigger portion of their Social Security benefits to income tax, according to MarketWatch. Clients' future Medicare premiums also would increase because of realized gains. And an increase in income due to realized capital gains could also activate the Alternative Minimum Tax, which could cost retirees benefits. -- MarketWatch
Clients who want to transfer wealth to their children but avoid the federal estate and gift taxes may consider intra-family loans, according to Forbes. Interest rates for such loans can be minimal, with loans up to 3 years subject to only 0.56% interest. However, the federal government will raise the interest rates in January. Those who intend to give loans to their children should provide clear terms and supporting documents to the IRS, and may give them annual exclusion gifts to cover the interest. -- Forbes
Clients can claim a relative as a dependent on their tax returns for 2015 if their share exceeds 50% of the family member's support and gross income is below $4,000, according to Kiplinger. This means the $4,000 will be tax-deductible if their taxable income isn't more than $258,250 for singles or $309,900 for joint filers. Also, taxpayers can deduct a dependent's qualified medical expenses if the costs are not more than 10% of their adjusted gross income, or 7.5% if they or their spouse is at least 65. – Kiplinger
Clients need to account for the effect of inflation to determine the real return of their assets, according to the Motley Fool. To compute for the real after-tax return, add 1 to the after-tax nominal return of their investments and to the inflation rate, then divide the return-based figure by the inflation number to yield the real after-tax return. -- Motley Fool
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