Perspectives Blog

The taxman cometh

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

…ntness of having to write a check to cover these higher levies, please keep in mind that municipal bond interest income is: subject to neither the new higher personal income tax rate of 39.6% nor the 3.8% NIIT not included when calculating the modified adjusted gross income (MAGI) levels that determine whether investors are subject to the NIIT Higher taxes and a growing antipathy toward them are powerful forces behind the renewed interest in mu…

The role of asset location

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

…istrations in order to increase after-tax returns. This strategy could be particularly effective with respect to income producing investments, once you consider the range of tax treatments. For example, take municipal security interest, which was left unchanged by the American Taxpayer Relief Act of 2012 and, therefore, generally continues to be federally tax-exempt. The tax-exempt interest neither counts under modified adjusted gross income nor…

Strategies for business owners to reduce net investment income tax

Abram Claude, Vice President, Columbia Management Learning Center | November 12, 2014

Self-employment income may be included in an individual’s net investment income, or may raise modified adjusted gross income beyond the net investment income threshold. Business owners may be able to reduce exposure to the net investment income tax by establishing a qualified retirement plan, and characterizing a portion of business earnings as pretax contributions to the plan. The Columbia Management Learning Center is dedicating a series of b…

The three tax thresholds of the new tax regime

Abram Claude, Vice President, Columbia Management Learning Center | November 3, 2014

…s determining your net investment income amount. Whichever amount is the lesser is where the 3.8% net investment income tax is applied. American Taxpayer Relief Act Sometimes referred to as PEP and Pease, single filers and married filing jointly filers who exceed their respective thresholds of $254,200 single/$305,050 joint in adjusted gross income will experience a phase-out of their personal exemptions and their itemized deductions. Personal ex…

New taxes require strategies to maximize after-tax return

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

Higher earners with taxable investments are most susceptible to triggering the net investment income tax, a surtax of 3.8% that applies to taxable investments. An asset location strategy involves placing a greater percentage of the most tax-sensitive investments in tax-deferred accounts. Retirement plans offer significant opportunities for participants and business owners to reduce taxable income. In 2013, new taxes associated with the Afforda…

Trust accounts and the net investment income tax

Abram Claude, Vice President, Columbia Management Learning Center | November 14, 2014

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…

Hungry for income? High yield munis could be your meal ticket

Chad Farrington, CFA, Head of Municipal Bond Credit Research and Senior Portfolio Manager | May 28, 2014

…s are only one component of the return provided by bonds. The main reason investors invest in bonds is for their income, and the income currently available from high yield municipals equals or exceeds income from taxable bonds without even considering the tax advantaged status of municipals. Despite significant volatility in the municipal market resulting from the financial crisis in 2008, fears of tax reform and dwindling market liquidity due to…