Tax Strategy Scan: Stocks vs. Funds

Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

The advantages of owning individual stocks: Investors who favor individual stocks over stock funds say that their strategy has given them more earnings from dividends while lowering their tax bills, according to Morningstar. Investing more assets in individual stocks allowed them to better control their portfolios over time. Some investors, however, are wary of individual stocks because of the volatility that comes with owning them. -- Morningstar

Getting the most from charitable giving with donor advised funds: Donating appreciated shares in taxable accounts instead of cash is a tax-efficient move for investors, according to Forbes. For example, an investor who donates shares worth $10,000 in a taxable account with a cost basis of $5,000 is allowed to claim a tax deduction of $10,000 without paying any capital gain tax on the $5,000 gains with these assets. -- Forbes

Minimize the bite of the 3.8% net-investment-income tax: Taxpayers have two years to take actions to minimize their exposure to the Net Investment Income Tax after filing their Form 1040 for 2014, according The Wall Street Journal. The NIIT, which is a 3.8% Medicare surtax on investment income, applies to whichever is lower between the net investment income and the excess amount after subtracting the modified adjusted gross income from the applicable threshold, which is $200,000 for singles and   $250,000 for joint filers. Read the possible strategies that taxpayers can use to curb or avoid the tax. -- The Wall Street Journal

Pay lower taxes on your investments: Tax-loss harvesting is a strategy for investors to reduce their tax bill, but there are also other ways they can lower their taxes, according to Bloomberg. Clients can take advantage of 401(k) and other tax-deferred retirement accounts, and keep their investments for more than a year to pay long-term capital gains tax, which is lower than the short-term tax. Investors may also place their tax-inefficient investments in their 401(k) plans and IRAs and have a withdrawal strategy that accounts for the tax implications of retirement accounts. -- Bloomberg