Tax Strategies Scan: Harvesting Energy Investments

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

A year-end plan for your lagging energy investments: Undervalued investments in the energy sector are good candidates for tax-loss harvesting if clients want to minimize their tax burden this year, according to The Wall Street Journal. With a few weeks left in 2015, the performance of investments in the energy sector is all but assured to be at or near the bottom among all sectors. Clients having taxable gains in non-energy portions of their portfolios may want to consider doing some year-end tax selling . -- The Wall Street Journal

Don't run afoul of tax rules with MLPs in retirement accounts: While retired clients pay no taxes on investments in their retirement accounts, they will owe taxes if they do have master limited partnerships in these accounts, according to Forbes. MLPs pass through their profits to partners, making their distributions subject to the Unrelated Business Taxable Income Tax. MLP distributions lower than $1,000 will not trigger the UBTI Tax, but clients may face the maximum tax rate of 39.6% if the distributions amount to $12,300. -- Forbes

Using passive funds in portfolio to reduce costs: Including passively managed funds in an investment portfolio can help clients reduce the costs, achieve diversification and lessen their worries about their investments, according to Morningstar. The article gives a real-life example of a portfolio with four passive funds, including a tax-efficient fund in a taxable account that realizes losses to offset gains, and tilts slightly away from dividend-paying stocks in order to avoid the dividends tax. -- Morningstar

How the estate tax exemption for 2015 and 2016 could save your family millions: Despite the unpopularity of estate taxes, clients can still save millions using exemptions, according to The Motley Fool. The estate tax exemption is capped at $5.43 million this year, meaning a $6 million inheritance will be taxed only for the excess of $570,000. The exemption enables clients to save up to $2,117,800 this year, with potential savings to increase to $2,125,800 next year, as the exemption will be raised to $5.45 million. -- The Motley Fool