tax planning - Linkenheimer LLP CPAs & Advisors

Mutual Funds: Handle with Care at Year End

As we approach the end of 2018, it’s a good idea to review the mutual fund holdings in your taxable accounts and take steps to avoid potential tax traps. Here are some tips.

Avoid surprise capital gains

Unlike with stocks, you can’t avoid capital gains on mutual funds simply by holding on to the shares. Near the end of the year, funds typically distribute all or most of their net realized capital gains to investors. If you hold mutual funds in taxable accounts, these gains will be taxable to you regardless of whether you receive them in cash or reinvest them in the fund.

For each fund, find out how large these distributions will be and get a breakdown of long-term vs. short-term gains. If the tax impact will be significant, consider strategies to offset the gain. For example, you could sell other investments at a loss.

Buyer beware

By Linkenheimer LLP|2018-11-27T16:53:53+00:00November 27th, 2018|tax planning, year-end|0 Comments

Time for NQDC Plan Deferral Elections

If you’re an executive or other key employee, your employer may offer you a nonqualified deferred compensation (NQDC) plan. As the name suggests, NQDC plans pay employees in the future for services currently performed. The plans allow deferral of the income tax associated with the compensation.

But to receive this attractive tax treatment, NQDC plans must meet many requirements. One is that employees must make the deferral election before the year they perform the services for which the compensation is earned. So, if you wish to defer part of your 2019 compensation, you generally must make the election by the end of 2018.

NQDC plans vs. qualified plans

NQDC plans differ from qualified plans, such as 401(k)s, in that:

NQDC plans can favor highly compensated employees,
Although your income tax liability can be deferred, your employer can’t deduct the NQDC until you recognize it as income, and
Any NQDC plan funding isn’t protected from your employer’s creditors.

While some rules are looser for NQDC plans, there are also many rules that apply to them that don’t apply to qualified plans.

2 more NQDC rules

In addition to the requirement that deferral elections be made before the start of the year, there are two […]

By Linkenheimer LLP|2018-11-21T19:10:25+00:00November 21st, 2018|qualified small business, tax planning|0 Comments

Donate Appreciated Stock for Twice the Tax Benefits

A tried-and-true year end tax strategy is to make charitable donations. As long as you itemize and your gift qualifies, you can claim a charitable deduction. But did you know that you can enjoy an additional tax benefit if you donate long-term appreciated stock instead of cash?

2 benefits from 1 gift

Appreciated publicly traded stock you’ve held more than one year is long-term capital gains property. If you donate it to a qualified charity, you may be able to enjoy two tax benefits:

If you itemize deductions, you can claim a charitable deduction equal to the stock’s fair market value, and
You can avoid the capital gains tax you’d pay if you sold the stock.

Donating appreciated stock can be especially beneficial to taxpayers facing the 3.8% net investment income tax (NIIT) or the top 20% long-term capital gains rate this year.

Stock vs. cash

Let’s say you donate $10,000 of stock that you paid $3,000 for, your ordinary-income tax rate is 37% and your long-term capital gains rate is 20%. Let’s also say you itemize deductions.

If you sold the stock, you’d pay $1,400 in tax on the $7,000 gain. If you were also subject to the 3.8% NIIT, you’d […]

By Linkenheimer LLP|2020-09-03T20:04:26+00:00November 12th, 2018|charity, gift tax, stock, tax planning|0 Comments

Selling Your Business? Defer — and Possibly Reduce — Tax with an Installment Sale

You’ve spent years building your company and now are ready to move on to something else, whether launching a new business, taking advantage of another career opportunity or retiring. Whatever your plans, you want to get the return from your business that you’ve earned from all of the time and money you’ve put into it.

That means not only getting a good price, but also minimizing the tax hit on the proceeds. One option that can help you defer tax and perhaps even reduce it is an installment sale.

Tax benefits

With an installment sale, you don’t receive a lump sum payment when the deal closes. Instead, you receive installment payments over a period of time, spreading the gain over a number of years.

This generally defers tax, because you pay most of the tax liability as you receive the payments. Usually tax deferral is beneficial, but it could be especially beneficial if it would allow […]

By Linkenheimer LLP|2018-11-06T16:25:36+00:00November 6th, 2018|business, liability, tax, tax implications, tax planning|0 Comments

Tax Planning for Investments Gets More Complicated

For investors, fall is a good time to review year-to-date gains and losses. Not only can it help you assess your financial health, but it also can help you determine whether to buy or sell investments before year end to save taxes. This year, you also need to keep in mind the impact of the Tax Cuts and Jobs Act (TCJA). While the TCJA didn’t change long-term capital gains rates, it did change the tax brackets for long-term capital gains and qualified dividends.

For 2018 through 2025, these brackets are no longer linked to the ordinary-income tax brackets for individuals. So, for example, you could be subject to the top long-term capital gains rate even if you aren’t subject to the top ordinary-income tax rate.

Old rules

For the last several years, individual taxpayers faced three federal income tax rates on long-term capital gains and qualified dividends: 0%, 15% and 20%. The rate brackets were tied to the ordinary-income rate brackets.

Specifically, if the long-term capital gains and/or dividends fell within the 10% or 15% ordinary-income brackets, no federal income tax was owed. If they fell within the 25%, 28%, 33% or 35% ordinary-income brackets, they were taxed […]

By Linkenheimer LLP|2018-10-03T17:39:36+00:00October 3rd, 2018|investment, New Tax Laws, planning, tax planning|0 Comments