Investment Analogy For Taxes Amidst Trump Era
If the plans come to pass, people who live off their investments, like retirees, will have to worry less about taxes and they'll have more options, especially in the bond market. The tax proposals of president-elect Donald Trump and of House Republicans would lower taxes overall, and lower them significantly on almost all kinds of investment income.
Under the plan, marginal tax rates would be consolidated and lowered to 12 percent, 25 percent and 33 percent. On the investment side, income from capital gains, interest and dividends would be taxed at 50 percent of those rates, according to tax experts and analysis of the plans. Right now interest and ordinary dividends are taxed at your normal rate and the federal capital gains tax starts at 20 percent.
Experts offer four ideas for your portfolio to take advantage of what may be historically low tax rates for a few years.
1. Seek investment vehicles with steady high income. Among those investments that grow more appealing are REITs; high-dividend stocks, like those of energy companies and utilities; and master-limited partnerships.
2. Rethink bonds. All kinds of bonds, including Treasuries, could grow more appealing, because the interest they produce is taxed at only 50 percent of your marginal rate.
3. Opt to pay taxes on retirement savings. Money can only be taxed once, so if you pay taxes on it under the new, lower rates you wont pay taxes later when rates could be higher. One of the winning investment vehicles in a low-tax environment is the Roth IRSA, in which you pay taxes now and don't owe them when you withdraw money.
4. Look for opportunities in lower business taxes. Investment taxes are set to get an overhaul; so are business taxes. As more people are self-employed, a tax cut on income that flows through pass-through entities, like partnerships and sole proprietorships, can be a boon. A rate of 50 percent of the marginal tax rate is on the table, said Camacho