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How state taxes differ by types of retirement income: Tax Strategy Scan

Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

State taxes on retirees differ by types of retirement income
Retirees can expect their state taxes to vary, depending on their home state and the types of their income, according to this article in Kiplinger. For example, seniors who live in New Mexico, Utah and 11 other states will owe income taxes on their Social Security benefits. Payouts from pensions and tax-deferred retirement accounts are usually not taxed in states without a state income tax or with tax levy only on interest and dividends.

A portion of a client’s Social Security benefits may be subject to federal income tax depending on their income levels.

When tax loss harvesting works for clients
Tax-loss harvesting can be a great strategy for clients to minimize their tax burden outside of tax-advantaged retirement accounts, a Forbes contributor writes. "When we are tax loss harvesting, we are selling certain shares of an investment at a loss to reduce taxes on the investment portfolio at the end of the year," the expert writes. "If you are selling an investment with a long term capital loss, these losses can help offset the capital gains from other investments that have been sold for a profit."

Why Gen X clients need to focus on retirement
Retirement saving can be very challenging for Gen Xers, as they have to provide financial support for their children and their aging parents, writes Catherine Golladay, president of Schwab Retirement Plan Services, in this MarketWatch article. Those who belong this "sandwhiched generation" should maximize their tax-advantaged retirement plans by contributing enough to qualify for the employer's match, she says. Those who want to save more outside of a 401(k) plan may contribute to other tax-advantaged savings vehicles, such as IRAs and HSA.

3 tax misconceptions that could come back to haunt your clients
Not paying taxes on earnings from a side hustle is one of the misconceptions that can have dire consequences, according to this article in Motley Fool. Under the Trump administration tax law, itemizing deductions can still be a good option if their deductible expenses exceed the standard deduction amount. Although the IRS scrutinizes less than 1% of tax returns every year, an audit is still likely especially if taxpayers don't report all of their earnings.

The average expense ratio among the top-performers is 40 basis points higher than the average.
April 9

Using trusts to navigate today’s markets
Advisors should consider trust vehicles to meet their clients' estate and financial planning needs, writes an expert in Barron's. Trusts "have a wide variety of applications, helping to provide stability. Some can hold assets in perpetuity, which is especially beneficial during uncertain times," the expert writes. "Common applications include transferring assets, providing liquidity to an estate and giving to charitable organizations. They also offer tax management benefits and can help advisors build more trust with clients."

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