Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
A tax strategy for a liquidity event: Filing 83(b) elections is a good tax strategy for investors in startups, especially if the value of their stocks is expected to increase over time, according to The Wall Street Journal. The tax treatment of the stocks will be defined at the time of purchase, rather than at a later time when the value of the stocks will be higher. Should the startup sell for a better price, the investor’s stock appreciation will be taxed as capital gains rather than ordinary compensation, thus considerably cutting the tax bill. -- The Wall Street Journal.
How to get a double dose of tax-deferred savings: Retirees who reach the age of 70 1/2 need to take required minimum distributions from their 401(k) plans and pay the corresponding taxes, according to Time Money. Failure to take the RMD means a penalty equivalent to 50% of the RMD amount including regular income taxes. Those who want to keep the funds are advised to open a taxable investment account and put the distributions into a variety of different investment buckets for instance, in cash, in a balanced mutual fund and in a tax-efficient exchange-traded stock fund. -- Time Money
When doing nothing is the best tax strategy: Clients are advised to consider the tax consequences of selling their home if the property has appreciated in value, according to MarketWatch. Selling a hugely appreciated home could mean a hefty tax bill. Those who sell residential property that has appreciated in value will face a 20% tax for federal capital gains and 3.8% tax for the Medicare surtax. Also, most states with personal income tax impose their own capital gains tax. -- MarketWatch
Sell in May? Only If You Like Paying Taxes! The stock market’s rocky start this month, coupled with Federal Reserve Chair Janet Yellen’s comments that stock valuations are “quite high,” has some investors wondering if they shouldn’t follow the old adage to “Sell in May and stay away.” Various pundits have tweaked the data, or ignored certain real-world concerns to make the “sell in May” mantra look a lot more attractive than it is, according to InvestorPlace. Don’t buy the hype. -- InvestorPlace
Tax Secrets: Life insurance strategies that enrich your family: How to raise the death benefits of life insurance policies, avoid increased premium costs and still be tax free. -- The Naples News
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