Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Clients should consider setting an asset protection trust to have Medicaid cover their nursing home care expenses in retirement and protect their assets from such costs, according to this article in Forbes. Those who intend to invest inside the trust can use a brokerage account, which means that investment growth can trigger a tax bill. The investments will also be exposed to market volatility, meaning clients could incur losses from a downturn.
Younger workers who are going to pay income taxes for the first time are advised to learn the basics about tax rules, as the tax code can be complicated, an expert writes for The Wall Street Journal. For example, these clients will face a federal income tax bill once their earnings exceed $12,200. Rates on taxable income range from 10% to 37%, with these rates phasing in as the income increases, she adds. "Lower earners often owe more for these social-insurance taxes than for income tax, because they can kick in on the first dollar of pay."
The cost of health care tops the list of financial concerns for 79% of future retirees, according to a Nationwide survey in this Motley Fool article. To prepare financially for this expense, clients are advised to save aggressively in tax-advantaged retirement accounts such as traditional 401(k)s and IRAs. They may also fund a Roth 401(k) or a Roth IRA, which offers tax-free distributions in retirement. A health savings account is another great place to save for medical expenses, as contributions are made on pretax basis and the account offers tax-free growth on investments and tax-free withdrawals for qualified expenses.
Clients who consider moving from a high-tax state to a tax haven to save on taxes should ensure that they pass the domicile test, as state auditors are likely to be very strict, according to this article in CNBC. This could mean leaving everything behind, including their home, says an attorney. “The best way to do it is to give up all ties to New York and sell your home, so there is no possible question that you’ve moved.”
Those leaving the workforce before 65 need more cost-effective places to live.
Clients are advised to make the most of the standard deduction, as this will reduce their taxable income as well as lower their tax bracket and tax rate, according to this article in TheStreet. Single taxpayers can see their standard deduction increase this year to $12,200, while joint filers who will opt the standard route can expect their deduction rise to $24,400. Standard deduction for heads of household will also increase to $18,350.
