Taxation of investments will undergo one of its most significant changes ever in 2013, when the Medicare tax is set to begin applying to investment earnings of higher-income individuals. Although this tax is years away, investors and their advisors need to be planning for it now as it will affect strategic decisions they make this year, including Roth conversions and capital gain realizations. Here’s a first look at the new tax. (more…)
Archive for the ‘Taxation of Investments’ Category
Medicare Tax on Investments: First Look
Wednesday, June 16th, 2010Ruling on Foreign Currency Option
Friday, May 21st, 2010In a case of first impression, the Tax Court has ruled (PDF) that a foreign currency option is not a foreign currency contract as that term is defined for purposes of section 1256 of the Internal Revenue Code. The ruling prevents the taxpayer from using the mark-to-market rules of section 1256 to claim a loss in connection with the option.
Gaps in Broker Reporting of Basis
Friday, May 14th, 2010It isn’t here yet, but it’s coming soon. Beginning with the 2011 tax year, those Forms 1099-B you receive from your broker for sales of stock will include not just the amount you received in the sale, as it does currently, but also your cost basis. The added information will be a convenience to those who are inclined to comply with the tax law, and a deterrence to those who are not. Basis reporting won’t be comprehensive, however, and it will be interesting to see how taxpayers respond to the gaps. (more…)
Disposition of Life Insurance Policy
Thursday, May 6th, 2010Last year, the IRS issued guidance (Rev. Rul. 2009-13 and 2009-14, PDF) on the tax treatment of certain life insurance transactions, including surrender or sale of a cash value policy. A piece appearing today in Tax Notes Today (a publication of Tax Analysts, subscription required) discusses those rulings. Author Kenneth N. Orbach, a professor at Florida Atlantic University, suggests that the IRS did not correctly analyze the issues. (more…)
Covered Calls and Tax Straddles
Wednesday, May 5th, 2010When someone owning shares of stock sells an option that would allow someone to buy those shares, the seller of the option is using a covered call strategy. The option is a call because it’s an option to buy, not an option to sell (which would be a put option). And because the person selling the option owns shares that can be used to meet the obligation to deliver stock if the option is exercised, the option is covered. Many people using this strategy believe they don’t have to worry about the complex tax rules that apply to straddles — and many of them are wrong. (more…)
