Author: Dr. Daniel Levine

Your portfolio’s design is a reflection of your investment philosophy. Before you can begin to craft your portfolio, you must have clear investment goals and objectives. You must also have completed your investment policy statement, defining how you plan to identify and select the investments in your portfolio, as well as the actions you intend to take to achieve your required rate of return. Two general investment strategies can be used: 1. Strategic decisions contemplate the investor’s investment horizon, risk profile, required returns and cash flow needs, available assets, tax brackets, inflation rates, and the average returns of different asset classes. 2. Tactical decisions are made by investors who believe one asset class will perform better than another, such as expecting stocks to outperform bonds, or international equities to outperform domestic equities. Together, strategic and tactical decisions will result in a mix, or a weighting, of asset classes that are believed to maximize returns for the investor’s acceptable level of risk. These asset classes are also sector-weighted against an index that will be used to measure the portfolio’s performance, and/or with a bias toward a sector expected to outperform other sectors. When examining securities, investors try to identify securities that appear to be mispriced. There are many methods for gauging the desirability of the security, but all these methods fall into one of two main classifications: technical analysis, and...

Top Tax Tip #9: Choose Your Filing Status to Skirt the 3.8% NIIT Since married people can file either jointly or separately, this important financial decision might best be made, in part, on their vulnerability to the 3.8% NIIT (net investment income tax) they might have to pay. As a reminder, the amount of unearned income subject to the 3.8% NIIT is the lesser of either the net investment income (NII) or the excess over an applicable threshold amount (ATA) of the modified adjusted gross income (MAGI). Included in the NII is gross income from interest, dividends, annuities, royalties, and a trade or business considered a passive activity. Excluded from the NII are qualified retirement plans, wages and salaries, and self-employment income. Remember, too, that the ATA is $125,000 for married taxpayers that file separately, and $250,000 for married taxpayers that choose to file jointly. While initially it may appear that the effect of the 3.8% NIIT would make no difference because of the similarity of ATA for filing separately or jointly, a closer analysis shows individual circumstances could sway the decision one way or the other. Should one spouse have most of the NII and the other have less, filing separately might save significantly on the 3.8% NIIT tax. Deciding whether to file separately or jointly also depends on the 0.9% Additional Medicare Tax as either one, or...

Top Tax Tip #7. Intra-Family Loans For families with estates that would otherwise have to pay the wealth transfer tax, intra-family loans have the capacity, when interest rates are low, to provide substantial tax-free transfers. The key to taking advantage of this benefit is when parents loan money to their children at a low interest rate and the children then invest the loaned money at a higher rate. In effect, the difference between the loaned rate and the new income constitutes a tax-free transfer of wealth to the children. The minimum interest rate is defined as the applicable federal rate (AFR) for the month in which the loan takes place. If the loan is for three years or less, the short-term AFR is used; for loans with a length of 3 to 9 years, the midterm AFR is the right choice; and if the loan has a term that’s more than nine years, the long-term AFR is appropriate. In January 2019 the semiannual AFRs were: Short-term AFR 2.72% Midterm AFR 2.89% Long-term AFR 33.15% Here’s a good example: A father loans his son $1,000,000 in January 2019 with a 12-year, interest-only balloon note. The interest rate is 3.15%. The son invests the money and produces a 10% after-tax return. By the end of the 12-year period, the son’s investment has grown to $3,138,428. The amount due after 12 years...

Here are two more great ideas you might be able to use when thinking about how to save money on your taxes this year. One or both of these ideas might result in some huge tax savings so you can apply the savings to other investments that would further increase the value of your portfolio. Take a look, and if either of these ideas seem appealing, schedule a visit with your financial planner. Top Tax Tip #5. Family Limited Partnership (FLP) Establishing a family limited partnership (FLP) can be very helpful with improving tax efficiency by shifting wealth to future generations. A family limited partnership allows the elder members of the family to share their assets with the family’s children while at the same time keeping control over the underlying assets in the hands of the senior family members. By transferring the elders’ assets to the children, the older family members’ estate may also benefit from a substantially reduced transfer tax. In this arrangement, the senior family members create the FLP in the role of general partners. The children or grandchildren serve the partnership as limited partners. In the beginning, the parents hold both general and limited partner interests. The general partners keep full control over the FLP and may gift as many of the limited partner units as they wish to their children or grandchildren, reducing their taxable...

A number of tax-saving opportunities are available for preserving your wealth, allowing you to accumulate more money for your retirement, your business,, your lifestyle, or for your heirs. Please read the following two tax tips carefully, and if interested, consider having a discussion about them with your financial planner so you can retain as much of your wealth as possible. Tax Tip #3: Nonqualified Tax Deferred Annuities: Consider smoothing your income through a deferred annuity. In those years when your income places you in the higher tax brackets, and if you invest in a deferred annuity, you can reduce your taxable income and possibly reduce both your income taxes and your NIIT (net investment income tax). Deferred annuities are useful tools and are often used to provide or supplement retirement savings. Deferred annuities are not qualified retirement plans but they do receive preferential tax treatment. Earnings on deferred annuities accumulate tax-free until funds are withdrawn. Deferred annuities can be either fixed or variable. A fixed annuity pays a guaranteed fixed interest rate. Variable annuities offer the annuity owner the choice of several investment options on the rates of return. Distributions of your annuity payments are subject to an exclusion ratio which divides the distribution into a taxable portion and, separately, a tax-free recovery of basis. Fixed and variable annuities have different exclusion ratio calculations. Even though the income from...