tax planning

Tax Trap From Mutual Fund Distribution

Mutual funds issue distributions to shareholders typically in either early November or late December. These are a taxable event which applies even if the mutual fund lost money after a shareholder bought shares. For example a fund could buy a stock at the beginning of the year, sell at a loss in mid-year and then in mid-year a new investor buys shares in the fund which then go down in value. The new investor, if a shareholder on date of distribution, is “tagged” with a 1099 distribution even if he lost money. Using Morningstar to screen I found 196 mutual funds with potential capital gains distributions of over 50%, some as high as 99%. These are mostly stock funds where

2017-11-06T17:09:42-08:00 November 6th, 2017|mayflowercapital blog|0 Comments

Political Events Imply Continuation of Status Quo of Low Yields

    The proposed tax cuts offered today in Congress are not a huge game changer that will stimulate the economy and trigger inflation. Regardless of which party is in power, the problem is a bipartisan problem, that the country’s excessive debt and government spending commitments mean the government is trapped and can’t afford a serious tax cut. When people or a government have too much debt then they become debt slaves and are unable to engage in increasing consumption and instead have to labor long hours just to keep their credit score from crashing. The appointment of Jerome Powell to be Federal Reserve chief is an affirmation of a continuation of traditional Federal Reserve moderate bubble making policies. He will

2017-11-02T13:29:16-07:00 November 2nd, 2017|mayflowercapital blog|Comments Off on Political Events Imply Continuation of Status Quo of Low Yields

Reducing 401k Limits: Tax Planning For Investors

  What would happen if Congress cut annual 401k contributions from $24,000 (for those over age 50, or $18,000 under age 50) to $2,400? This would mainly affect affluent upper-middle class people, since moderate income people can’t afford to save that much. However, if people responded to this by increasing their savings in a taxable account then future capital gains would be taxed at the lower capital gains rate or even result in no tax if the taxpayer died before selling an asset. Also, the benefits of using a taxable account instead of a retirement account is that one could invest in tax exempt Muni bonds or buy rental real estate and get depreciation deductions and tax-deferred “1031” rollovers of

2017-10-26T12:58:31-07:00 October 26th, 2017|mayflowercapital blog|Comments Off on Reducing 401k Limits: Tax Planning For Investors

Tax Cut To Increase Inflation And Hurt Bonds?

  Interest rates rose because of news reports that Congress might finally be able to pass tax cut legislation. The 10 year Treasury Note, now at 2.38%, has the highest yield since March 20, 2017. Fundamentally Congress is unlikely to pass a true net tax cut because the deficit is so huge and growing. Thus the “cut” will simply move money around from one taxpayer to another. For example, they could offer a cut but then raise “effective” taxes by reducing the annual contribution to a 401k from $18,000 to $2,400, thus costing some people about $5,000 in extra federal taxes and more in state taxes, since states usually conform to federal tax rules.  Congress could cut taxes on high

2017-10-20T14:05:18-07:00 October 20th, 2017|mayflowercapital blog|Comments Off on Tax Cut To Increase Inflation And Hurt Bonds?

Market Won’t Be Stimulated By Tax Cut

  The administration’s proposed new tax law may not actually end taxation of offshore subsidiaries, according to an article in the FT. In my opinion the items that are likeliest to have the biggest tax cuts and biggest source of stimulus are these items, and the possibility of a special low rate for pass through entities. However, these would be seen by moderates as unfair (especially a lower rate for elitist privately held pass-through entities) and not helpful in terms of a goal of not increasing the budget deficit. Thus these items may be unlikely to pass Congress, based on the administration’s difficulty getting other bills passed. If Congress truly ends taxation of U.S. based companies’ foreign earnings that may

2017-09-28T14:17:26-07:00 September 28th, 2017|mayflowercapital blog|Comments Off on Market Won’t Be Stimulated By Tax Cut

Bonds To Be Damaged by New Tax Law?

    The administration proposed new tax laws today, which may increase deficit spending, thus leading to inflation and higher interest rates. The ten year Treasury bond yield went up 8 basis points from 2.23% to 2.31%, making the bond’s price drop 0.7%. The increased debt would mean 8% higher U.S. Treasury debt balances over ten years or an increase of 0.7% in debt balances a year, which is less than inflation. Thus in real terms the debt balances won’t increase.         There is only a modest chance that Congress will make any big changes to tax laws. If the law is passed it will not threaten tax-free Municipal bonds, but will end the deduction of state income tax from

2017-09-27T13:57:37-07:00 September 27th, 2017|mayflowercapital blog|Comments Off on Bonds To Be Damaged by New Tax Law?

Congress Unlikely To Create Tax Cut Stimulus Thus Increasing Risks of a Crash

Getting tax cuts, which will then result in stimulation of the economy, is unlikely to happen. The Republicans, over decades, have been eager to offer increased spending programs to compete with Democrats for votes. The total uncontrollable, mandatory spending on social welfare programs is so deeply entrenched and growing that there is no room to cut taxes. The source of huge future deficits will be from the government’s cost of health care programs and this can’t be changed due to demographic patterns. With the 60 vote Senate filibuster limit it takes a considerable consensus to make major changes, one that is unlikely to be achieved in an era where the president was elected by the Electoral College despite getting 3

2017-09-21T14:51:29-07:00 September 21st, 2017|mayflowercapital blog|Comments Off on Congress Unlikely To Create Tax Cut Stimulus Thus Increasing Risks of a Crash

Tax Planning For Investors

If someone is elderly they may find that if they have accumulated capital loss carryforwards that they can’t transfer these in their Will when they pass on and thus these deductions are simply lost. Thus at an advanced age one should have a higher motivation to avoid incurring capital losses. One possible way to do this is to gradually reduce ownership of high basis risk-on assets such as stocks. For example, if someone bought a stock for $100 and it is trading at $100 it may not take much for the market to plunge a few percent causing a capital loss. Thus one might find it wise from a tax perspective to sell that if they had no offsetting realized

2017-09-05T15:52:51-07:00 September 5th, 2017|mayflowercapital blog|Comments Off on Tax Planning For Investors

Will Tax Cuts Create Growth?

              Tax cuts can stimulate the economy. However, many articles written about tax cuts don’t clarify some serious misunderstandings. The typical article criticizing tax cuts cites the 91% tax rate started in the New Deal that was from 1933 to 1963 and compares it to today’s lower rates. But these articles fail to mention that before the 1986 tax law changes investors could cavalierly buy a legal tax shelter using leverage at the end of the year and get tremendous savings. Someone could pay $100,000 to buy a limited partnership unit that provided an immediate $300,000 write off thus eliminating their tax bill. The best way to judge the economic impact of tax cuts is to step back and gain

2017-05-01T12:08:12-07:00 May 1st, 2017|mayflowercapital blog|Comments Off on Will Tax Cuts Create Growth?

Will Border Tax Adjustment Cause Inflation?

If the proposed Border Tax Adjustment becomes law there are three scenarios: Scenario A. The consumers and business simply ignore it and consumers pay it to access foreign made goods. This would increase consumer prices since the tax would be embedded in the retail cost of goods. However consumers would react to higher prices by cutting back on purchases thus provoking some retailers and manufacturers, including foreign companies to cut costs. Also the dollar might go up slowly to partially offset this, making the cost of imported goods lower than it would have been. In this scenario little or no increase in domestic employment results. This in turn avoids inflation that is caused by rising wages that enable larger bank

2017-02-23T10:56:13-08:00 February 23rd, 2017|mayflowercapital blog|Comments Off on Will Border Tax Adjustment Cause Inflation?