Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
The IRS is expected to implement tighter rules on rolling over an IRA into another IRA investment starting Jan. 1, according to U.S. News & World Report. The new rules will allow only one rollover every 365 days, and this means clients who consider withdrawing money from their IRAs need to seek professional advice as the transaction can be subject to penalty, a consultant says. The new rules will not place a cap on trustee to trustee transfers, and will allow clients to do rollovers as frequent as they want, according to experts. -- U.S. News & World Report
To minimize exposure to the Net Investment Income Tax, individual clients need to determine whether such tax would be imposed on their Net Investment Income/undistributed Net Investment Income or their excess of Modified Adjusted Gross Income/excess of Adjusted Gross Income, according to Forbes. Clients may ask their advisor to determine the most suitable strategy to curb or scrap their NII/UNII if it will be subject to NIIT. They are advised to explore ways to lower or defer any type of income if excess MAGI /excess AGI would trigger NIIT. -- Forbes
For investors, one way to reduce taxes is to create a portfolio comprised of ETFs or stock index mutual funds with low management fees, according to Morningstar. Clients should consider aspects such as market exposure, which should fit an individual's asset exposure preference; and fees, which should be kept at a minimum. Lastly, tax cost rations are to be considered, as lower taxes on investments maximize a fund's returns. -- Morningstar
Instead of direct ownership, putting a property in an irrevocable trust can reduce the impact of the asset on the federal estate tax exemption, according to The Wall Street Journal. Operating as a limited liability company would protect a property from estate taxes and creditors while accumulating rental income. A life insurance policy would allow liquid assets to repay debts in a form of lump sum in case the property owner dies. The Wall Street Journal
Sustainable, well-run businesses should pay a fair level of tax, and avoid the reputational, legal and financial risks posed by aggressive tax planning. From the shareholder's point of view, every dollar paid in tax is one dollar less available to the business, or to pay dividends. Ostensibly, company management is pursuing its fiduciary duty in minimizing within the law their company's tax burden. But a growing number of investors are becoming concerned about the risks posed by a too-dogged pursuit of tax efficiency. So what should investors do? These issues are incredibly complex. It can be difficult to differentiate between legitimate tax planning and aggressive practice. -- Pensions & Investments