Tax Guide for Investors

Tax Season Advisory

January 5, 2018

Based on announcements by the IRS, here are some important dates and other information to keep in mind regarding this year’s tax season. Read the rest of this entry »

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Last Minute Actions for the New Tax Law

December 20, 2017

As these words are being written, it appears all but certain that we’ll have a new tax law with some rather drastic changes taking effect in 2018. We’ve reviewed the law for issues that may require attention in the last few days of 2017, and came up with the following four items:

Itemized Deduction for State and Local Taxes
Some people will benefit by paying in 2017 tax they would otherwise pay in 2018, but there’s a catch.

Roth Recharacterization Repealed
If you want to undo a Roth conversion you did earlier in 2017, it appears you’ll have to do this before the end of the year.

Loss on IRA Liquidation
In rare circumstances it can make sense to liquidate an IRA when your basis in the IRA exceeds the value of the assets. The opportunity to make this move disappears December 31, 2017.

Alimony Deduction Repealed
If you’re close to completing a divorce settlement agreement, the tax consequences may be more favorable if you close the deal before the end of 2017.

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Itemized Deduction for State and Local Taxes

December 20, 2017

This is the first in our series Last Minute Actions for the New Tax Law.

The new tax law will make it harder to benefit from itemized deductions for state and local tax, partly because of an increase in the standard deduction and partly because of a new limit on this particular deduction. Affected taxpayers may want to consider prepaying tax they otherwise would pay in 2018, but the law appears to block this strategy as to prepayments of state and local income tax. Read the rest of this entry »

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Roth Recharacterizations Repealed

December 20, 2017

This is the second in our series Last Minute Actions for the New Tax Law.

We’re pleased to say that the strict interpretation of the effective date for this change in the law, which we initially thought was most likely, will not apply. We have confirmed that the IRS will be taking the position that 2017 Roth conversions can be recharacterized until October 15, 2018.

Moving money from a traditional retirement account to a Roth IRA can be a smart move, but sometimes it backfires due to a change in personal circumstances or, more often, investment losses in the converted account. We haven’t had to worry too much about this possibility, though, because we could recharacterize a Roth conversion — in other words, undo it — at any time up until October 15 of the following year. The new law does away with this opportunity. As of 2018, we’re no longer allowed to reverse these transactions. Read the rest of this entry »

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Loss on IRA Liquidation

December 20, 2017

This is the third in our series Last Minute Actions for the New Tax Law.

In limited circumstances, it can make sense to liquidate an IRA for the purpose of claiming a loss deduction. This works only if the total amount of basis you have in all your IRAs in the same category (traditional or Roth) exceeds the total value of those IRAs. Even then, it isn’t necessarily a good idea, but in the right situation, shutting down IRAs to claim a tax loss can be a smart move. This opportunity disappears at the end of 2017. Read the rest of this entry »

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Alimony Deduction Repealed

December 20, 2017

This is the fourth in our series Last Minute Actions for the New Tax Law.

But we were wrong! Reading too fast, we thought repeal of the alimony deduction took effect in 2018, but this change in the law is delayed until 2019. Many thanks to the good folks at Kiplinger for alerting us to our error. You have another year to get over all those horrible things your spouse did and reach agreement on a settlement that maximizes overall tax benefits.
Read the rest of this entry »

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Relief for Missed Rollover Deadline

August 25, 2016

One of the more common mistakes people make in handling their retirement accounts is missing the 60-day deadline for completing a rollover. If you have a good excuse, you can get a ruling from the IRS that avoids the negative tax consequences, but that process is painfully expensive in time and money. Thanks to new guidance from the IRS, in many cases this won’t be necessary.

Read the rest of this entry »

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Tax Planning in a Nutshell

July 12, 2016

What is tax planning, anyway? We challenged ourselves to provide the shortest possible explanation:

Tax Planning in 100 Words

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Custodial Accounts for Minors

July 9, 2016

Our updated online guide to custodial accounts for minors explains all the ins and outs of using these accounts established under the Uniform Transfers to Minors Act, or UTMA. Pages of interest:

UGMA & UTMA Custodial Accounts for Minors
Top page of this guide, with an index to the other pages.

UTMA Regret: When Custodial Accounts Turn Sour
What if you find that it was a mistake to set up a custodial account? Here are some of the reasons for what we call UTMA regret, and strategies for dealing with it.

UTMA Transfer to a 529 Account
Can you transfer a custodial account to a 529 savings account? Should you?

 

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Don’t Sell on Leap Day

February 27, 2016

Capital Gains_100x150We issue this warning once every four years: if you bought an investment on February 28 last year, and you plan to sell it for a long-term capital gain, you need to delay your sale until March 1. This is because of a little-known technicality. Strictly speaking, your holding period for a capital asset includes the day of sale but not the day of purchase. Stock or other assets bought on February 28, 2015 have a holding period that began March 1, 2015, so you have to hold until March 1, 2016 to have a long-term gain. It may seem logical that selling on Leap Day would satisfy the year-and-a-day rule when the purchase was on February 28 of the previous year, but that would be leaping to the wrong conclusion.

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