Low fund prices aren’t everything: Tax Strategy Scan
Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Low fund prices aren’t everything
While clients opt for low-cost funds to improve investment returns, they should not just focus on prices and must consider other factors in investing, according to this article on Barron's. A big difference in prices may not be enough to offset taxes on capital gains and other costs related to switching. For example, a high turnover from an investment in a low-cost ETF could trigger a big tax bill that could write off any short-term gains.
Get money (or a tax deduction) for your used tech
Clients who have old electronics they are no longer using have the option of donating their old gadgets to charity and claim a tax deduction for the donations, a Kiplinger personal finance expert writes. They are advised to have backup copies of their files and delete all personal data and programs on these devices before donating them to charity, the expert warns. "While charities often wipe your devices, it is better to be safe than sorry."
Just in case clients are looking to cut few corners, here are some of the most common tax frauds that the agency is ready to pounce upon.February 23
Clients saving in a 401(k) for the first time? Here’s what they need to know
Young workers will be better off saving for retirement early using their workplace 401(k) plan, writes an expert on MarketWatch. The plan offers compounded growth on investments, valuable tax benefits and matching contributions, the expert explains. First-time 401(k) participants are advised to understand the basic rules and the tax implications of contributing to these accounts to take advantage of the benefits. For example, clients who contribute to a traditional 401(k) can expect a lower taxable income, while those who expect to move to a higher tax bracket in retirement can save on taxes if they contribute to a Roth account.
The keys to financial success are incredibly mundane (sorry!)
Reducing investment and behavioral costs is one of the keys for clients to achieve financial success, writes Morningstar's Christine Benz. "Tax costs can be a further drag on bottom-line returns," according to Benz. "All of these expenses look pretty innocuous on a standalone basis... [b]ut compounded over a typical investing time horizon of 50 years, they can mean the difference between a plan that's on solid footing and one that's on shaky ground."
New research shows the downsides of scrapping tax havens
Moves to remove tax havens could have an unfavorable impact on the economy, according to this article on The Hill. A working paper by Duke's Juan Carlos Suárez Serrato finds that U.S. firms reduced their domestic investments and job generation after the government scrapped Puerto Rico's status as a tax haven.