Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Clients who want to pass on their stocks in an IRA to their children after they die need to name the youngsters as beneficiaries of the account, or execute a will to that effect if the investments are not in an IRA, according to The Cincinnati Enquirer. Since drafting a will entails a costly and complicated process, clients may opt for a "Transfer on Death Agreement" to make the future transfer faster, more efficient and cheaper. The taxes for such transfers depend on the inherited stocks' cost-basis. The original cost-basis is used if the owner is still alive, but it will take on the market value if the transfer is made at the time of the owner’s death. -- The Cincinnati Enquirer
Starting a private trust company is a strategy used by wealthy families to manage their own investments, tax requirements and other legal matters, as well as for their own privacy, control and protection, according to Forbes. A federal or state government agency issues the license to public trust companies as well as regulates and oversees them. Capital requirements are also imposed on trust companies by the federal or state regulator. -- Forbes
Tax-loss harvesting is a strategy that enables investors to save on their tax return by selling losing securities and using the capital loss to offset their gains, according to CNBC. Clients normally include such a strategy in their year-end tax trimming plan, since mutual funds' dividends are disclosed to shareholders late in the year. Clients need to understand that a mutual fund may be sold as part of tax-loss harvesting if it has dropped 5%, and they should not buy a stock that is "substantially identical” to the one they have sold to avoid the wash-sale rule. --CNBC
One of the advantages of investing in municipal bonds is that munis are exempt from federal income tax. Clients also usually do not pay state and local taxes for muni bonds if these investments are issued in their state of residence, according to Fox Business. Certain U.S. agency bonds -- such as those from the Federal Farm Credit Bank (FFCB) or the Federal Home Loan Bank (FHLB) -- are tax-advantaged and exempt from state income tax. Of course, for any bond held in a 401(k) or an IRA, interest is not taxed. -- Fox Business
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