Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Taxes matter in fund investing, even when there’s no bill: Investors need to consider the tax consequence of their mutual fund investments in both tax-deferred and taxable accounts, experts say. Their tax bill is likely to increase as they receive capital-gains distributions from these funds every year, whether they withdraw the amount or not, so looking for tax-efficient funds can help them save substantially. “There’s a lot of effort in the industry on picking stocks and timing the market, but that is extremely difficult to do persistently. Often, it’s much easier to create value by managing your trading costs and managing taxes,” an expert says. -- The Washington Post
How withdrawals from 401(k)s and IRAs differ: Traditional IRAs and 401(k) plans share certain similarities but are subject to different rules when it comes to taxation and access to funds, according to MarketWatch. Transferring 401(k) assets to an IRA will be taxed and penalties levied according to the client's age, and is allowed only when their employment is terminated. Any existing loan balance will be considered a distribution if an IRA rollover is made, but will be taxable if the 401(k) funds are not transferred. -- MarketWatch
What to do after tax season is over: The end of the current tax season should motivate taxpayers in thinking how to potentially reduce future tax liabilities by avoiding, deferring or converting tax, according to Huffington Post. Deductions and exclusions can actually allow many to avoid or decrease the amount of their tax bills. Contributing to tax-deferred retirement plans such as a 401(k) gives taxpayers the ability to defer tax liabilities to a later time when their income will be much lower. Another rate-lowering technique is to convert ordinary income into long-term capital gains which could levy better tax rates. -- Huffington Post
Selling your business — your tax strategies depend on who the buyer is: Strategies to reduce the tax bite when selling a C corporation depend on who the buyer is and the terms of the deal, according to Forbes. A business seller can structure the sale of a C corporation as a tax-free stock-swap when the seller accepts the buyer’s own stock as payment. However, there is a challenge of no liquidity in this case, especially if the assets are tied up in one stock. In such cases, there may be a need to diversify in order to minimize income taxes on the asset sales. -- Forbes
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