Six Most Overlooked Tax Deductions and Long-Term Investing Truths
by rwilczek on Apr 4, 2019
Hope all is well in your world.
Since its tax season, I thought you might find the “Six Most Overlooked Tax Deductions” of interest.
Pay particular attention to Medicare Premiums it you are self-employed and State Taxes (it hurts not to be able to deduct more than $10,000 state and local taxes).
Consult a CPA or tax professional to help prepare your taxes, especially this year with MN not conforming to the Federal. If you owe a lot, ask your CPA what you can do to reduce your tax liability and/or how to adjust your withholding.
Thanks and be well.
Six Most Overlooked Tax Deductions
Six overlooked tax deductions to help you manage your tax bill.
Provided by Rita Wilczek
Who among us wants to pay the Internal Revenue Service more taxes than we have to? While few may raise their hands to voluntarily pay more taxes, Americans regularly overpay because they fail to take tax deductions for which they are eligible. Are you one of them? Let’s take a quick look at the six most overlooked opportunities to manage your tax bill.
Reinvested Dividends. When your mutual fund pays you a dividend or capital gains distribution, that income is a taxable event (unless the fund is held in a tax-deferred account, like an IRA). If you’re like most fund owners, you’ll reinvest these payments in additional shares of the fund. The tax trap lurks when you sell your mutual fund. If you fail to add the reinvested amounts back into the investment’s cost basis, it can result in double taxation of those dividends.1,2
Self-Employment Taxes. If you are a sole proprietor, you can claim 50% of what you pay in self-employment tax, as an income tax deduction. This only makes sense, since you are actually paying both the employee and employer share of Social Security and Medicare taxes at your business.3
Out-of-Pocket Charity. It’s not just cash donations that are deductible. Any time you donate goods or use your personal car for charitable work, these are potential tax deductions. Just be sure to get a receipt for any amount over $250.4
State Taxes. Did you owe state taxes when you filed your previous year’s tax returns? If you did, don’t forget to include this payment as a tax deduction on your current year’s tax return. The Tax Cuts and Jobs Act of 2017 placed a $10,000 cap on the state and local tax deduction.4
Medicare Premiums. If you are self-employed (and not covered by an employer plan or your spouse’s plan), you may be eligible to deduct premiums paid for Medicare Parts B and D, Medigap insurance, and Medicare Advantage plans. This deduction is available regardless of whether you itemize deductions.4
Income in Respect of a Decedent. If you’ve inherited an IRA or pension, you may be able to deduct any estate tax paid by the IRA owner from the taxes due on the withdrawals you take from the inherited account. Be sure to check with a tax professional on your specific situation.5
The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
Rita Wilczek may be reached at (952) 542-8911 or email@example.com
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - thebalance.com/how-to-avoid-the-double-taxation-of-mutual-funds-2466698 [8/19/18]
2 - kiplinger.com/article/taxes/T055-C032-S014-tax-rules-on-10-retirement-accounts-or-investments.html [3/21/18]
3 - turbotax.intuit.com/tax-tips/self-employment-taxes/the-self-employment-tax/L8xXjolB4 [12/13/18]
4 - kiplinger.com/slideshow/taxes/T054-S001-most-overlooked-tax-deductions-2018/index.html [11/20/18]
5 - investopedia.com/terms/i/income_respectof_decedent.asp [1/30/18]
Long-Term Investing Truths
Key lessons for retirement savers.
Provided by Rita Wilczek
You learn lessons as you invest in pursuit of long-run goals. Some of these lessons are conveyed and reinforced when you begin saving for retirement, and others, you glean along the way.
First and foremost, you learn to shut out much of the “noise.” News outlets take the temperature of global markets five days a week (and on the weekends), and economic indicators change weekly or monthly. The longer you invest, the more you learn that breaking news can create market volatility. While the day trader sells or buys in reaction to immediate economic or market news, the buy-and-hold investor has a long-term perspective and understands that the market can have periods of volatility.
You learn how much volatility you can stomach. Market sentiment can quickly shift and so can index performance. Across 2008-18, the S&P 500 had a cumulative total return (dividends included) of almost 140%, compared to just 8% for the MSCI Emerging Markets Index. During 2003-07, though, the Emerging Markets index returned 391%, while the S&P returned 83%.1,2
Here are the recent yearly total returns of the S&P: 2013, +30.71%; 2014, +13.57%; 2015, +1.30%; 2016, +11.94%; 2017, +21.83%; 2018, -4.38%. Do you see any kind of “norm” or pattern there? That is the kind of year-to-year volatility that leads people to find an asset allocation that is comfortable for them.2,3
You learn why liquidity matters. The older you get, the more you appreciate being able to quickly access your money. A family emergency might require you to tap into your investment accounts. An early retirement might prompt you to withdraw from retirement funds sooner than you anticipate. Should you misgauge your need for liquidity, you could find yourself under sudden financial pressure.
You learn the merits of rebalancing your portfolio. To the neophyte investor, rebalancing when the bulls are stampeding may seem illogical. If your portfolio is disproportionately weighted in equities, is that a problem? It could be.
Across a sustained bull market, it is common to see your level of risk rise parallel to your return. When equities return more than other asset classes, they end up representing an increasingly large percentage of your portfolio’s total assets. Correspondingly, your cash allocation shrinks.
The closer you get to retirement, the less tolerant of risk you may become. Even if you are strongly committed to growth investing, approaching retirement while taking on more risk than you feel comfortable with is problematic, as is approaching retirement with an inadequate cash position.
Rebalancing a portfolio restores the original asset allocation, realigning it with your long-term risk tolerance and investment strategy. It may seem counterproductive to sell “winners” and buy “losers” as an effect of rebalancing, but as you do so, remember that you are also saying goodbye to some assets that may have peaked, while saying hello to others that might be poised to rise.4,5
You learn not to get too attached to certain types of investments. Sometimes an investor will succumb to familiarity bias, which is the rejection of diversification for familiar investments. Why does he or she have 9% of their portfolio invested in just two Dow components? Maybe the investor just likes what those firms stand for or has worked for them. The inherent problem is that the performance of those companies exerts a measurable influence on overall portfolio performance.
Sometimes you see people invest heavily in sectors that include their own industry or career field. An investor works for an oil company, so they get heavily into the energy sector. When energy companies go through a rough patch, that investor’s portfolio may be in for a rough ride. Correspondingly, that investor may have less capacity to tolerate stock market risk than a faculty surgeon at a university hospital, a federal prosecutor, or someone else whose career field or industry will be less buffeted by the winds of economic change.6
You learn to be patient. Time teaches you the importance of investing based on your time horizon, risk tolerance, and goals. The pursuit of your long-term financial objectives should not falter. Your financial future and your quality of life may depend on realizing them.
Rita Wilczek may be reached at (952) 542-8911 or firstname.lastname@example.org
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - etf.com/sections/features-and-news/swedroe-investing-uncomfortably?nopaging=1 [12/31/18]
2 - The performance data quoted herein represents past performance and does not guarantee future results. Individuals cannot invest directly in an index. Investing in securities involves risk of loss that clients should be prepared to bear. No investment process is free of risk; no strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Market volatility can dramatically impact short-term investment performance. Current performance may be lower or higher than figures shown. An investment’s return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
3 - indexologyblog.com/2019/02/04/sp-500-performance-in-2018-how-much-does-size-matter/ [2/4/19]
4 - Neither asset allocation nor diversification can eliminate the risk of fluctuating prices and uncertain returns. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions may materially alter the performance of your portfolio. There are no assurances that a portfolio will match or exceed any particular benchmark.
5 - Tax loss harvesting is not suitable for all investors. Nothing herein should be interpreted as tax advice, and the author of this article does not represent in any manner that the tax consequences described herein will be obtained, or that any investment product will result in any particular tax consequence. Please consult your personal tax advisor as to whether tax loss harvesting is a suitable strategy for you, given your particular circumstances. The tax consequences of tax loss harvesting are complex and uncertain and may be challenged by the IRS. You and your tax advisor are responsible for how transactions conducted in your account are reported to the IRS on your personal tax return. The author assumes no responsibility for the tax consequences to any client of any transaction.
6 - Because of its narrow focus, a sector investing strategy tends to be more volatile than an investment strategy that is diversified across many sectors and companies. Sector investing also is subject to the additional risks that are associated with its particular industry. Sector investing can be adversely affected by political, regulatory, market, or economic developments.