Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
8 smart mid-year tax moves to pocket more money: Clients who want to save on taxes in next year’s tax season are advised to adjust their withholding if they receive a hefty refund every year, according to Kiplinger. They also need to review the amount of contributions to their 401(k) plans and flexible spending/reimbursement plans, as well as the taxable portion of their investment portfolio. Taxpayers who are turning 70-1/2 this year need to start taking RMDs from their IRAs and other retirement plans to avoid tax penalties, while those who want to save more on taxes may consider using home equity to pay off credit card debt and assessing their tax circumstances to see if they qualify for tax breaks.
How to make your investments less taxing: Investors can reduce their tax liability substantially by doing tax-loss harvesting any time of the year, according to Fox Business. The process involves selling losing securities and using the loss the offset the gains from the sale of winning investments. Such a strategy makes a lot of financial sense, especially to those who hold large taxable investments in their portfolio.
Assessing the tax treatment of options trading: As a “tradable” financial instrument used to lower risk with hedging strategies, taxation could be complicated here, especially if it involves complex trades with offsetting positions, according to Forbes. While the tax treatment for outright option trades can be straightforward, taxation for complex trades triggers a bunch of Internal Revenue Services 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.
Start saving on your 2015 taxes now: Clients are advised to start planning for their tax obligations as early as they can to save money and spare themselves of the hassles during the tax-filing season, according to Time Money. Effective tax-planning strategies include tax-loss harvesting, larger charitable donations and increased contributions to retirement plans. They may also consider a Roth IRA conversion and take full advantage of company stock options in retirement plans.