Perspectives Blog

New taxes require strategies to maximize after-tax return

Abram Claude, Vice President, Columbia Management Learning Center | March 18, 2014

trategy is in place, the overlay of an asset location approach involves placing a greater percentage of the most tax-sensitive investments in tax-deferred accounts. For instance, investors pay tax on the interest from taxable fixed-income securities such as corporate bonds at their marginal income tax rate. For high earners, this could be 33% or 35%. On the other hand, many investors pay tax on income from qualified stock dividends at a far lower…

The role of income inequality

March 3, 2014

to zero and thereafter employ non-traditional measures such as quantitative easing in an effort to restart demand. However, central banks have limited experience using non-traditional tools. Suppressing yields in high-quality fixed-income securities and attempting to push more to take risk have merely raised the price of financial and real assets (which benefits the top 5%) without a commensurate rise in demand and economic activity (which would…

The taxman cometh

James Dearborn, Head of Municipal Bonds | March 13, 2014

…nvestors. After taxes, municipal bonds make sense Today’s municipal bond yields look compelling, especially for high tax bracket investors. If an investor takes the time to determine how much more one has to earn on a taxable fixed income investment to be equal with a tax-free municipal bond — after paying taxes — she will realize how attractive muni bonds are. In Exhibit 1, we compare municipal yields, adjusted for the benefit of the tax-exempti…

The role of asset location

Abram Claude, Vice President, Columbia Management Learning Center | October 23, 2013

…ital gains rate is 20%. Long-term capital gains and qualified dividends are not the least tax-sensitive gains income, but they aren’t the most tax-sensitive either. The income from corporate bonds or other (federally) taxable fixed-income securities is taxed as ordinary income. For someone who is subject to the 15% long-term capital gains rate, that means their bond interest could be taxed at a rate as much as 25%, 28%, 33%, 35% or 39.6% (the inc…

What is the Net Investment Income Tax, and how is it calculated?

Abram Claude, Vice President, Columbia Management Learning Center | September 18, 2013

come tax is a new, permanent tax that is effective beginning in 2013. The tax will go into the general revenue of the U.S. Treasury, but it was legislated to support the Affordable Care Act of 2010. Investors who hold taxable fixed-income securities in taxable accounts, including trust accounts, may be among the most affected by this new tax. For individuals, the 3.8% surtax impacts those with modified adjusted gross income over certain threshold…

Should your income be fixed?

David King, CFA, Senior Portfolio Manager | December 16, 2013

Investors need to rethink the role of fixed income in building portfolios How to provide an adequate rate of return with an acceptable level of risk Benefits of a non-fixed, income-oriented strategy in today’s environment Peanut butter and jelly. Bacon and eggs. Scotch and soda. In the investment industry, the words “fixed” and “income” seem as inseparable as our favorite food and beverage combinations. Something which has served millions of p…

Trust accounts and the net investment income tax

Abram Claude, Vice President, Columbia Management Learning Center | October 9, 2013

The 3.8% net investment income tax applies to certain trusts and estates. Given the lower income thresholds for reaching higher tax brackets in a trust, it is possible that income or capital gains retained by the trust will be taxed at higher rates than if the income or gains were distributed to beneficiaries. The Columbia Management Learning Center is dedicating a series of blog articles to this important and timely “Navigating the New Tax Reg…