Perspectives Blog

Trust accounts and the net investment income tax

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

…Tax principles that apply to individuals also apply to trusts and estates as a separate entity. Trusts can earn taxable and tax-exempt income, (for instance tax-exempt income from municipal securities would not be subject to taxation in a trust), and they are eligible to deduct certain expenses. They are also allowed a small exemption amount. The amount depends on the type of trust, but they are not eligible for a standard deduction. One key dif…

New taxes require strategies to maximize after-tax return

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

…et of 39.6% face a lower long-term capital gains rate of 20%. Given the significant differential in tax treatment, it could make sense to place more taxable fixed-income securities in a tax-deferred account, not only to defer taxation now but also because the taxable portion of eventual distributions will also be taxed as ordinary income. The second reason to consider asset location is the net investment income tax. What is net investment income…

The role of asset location

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

Financial advisors and investors should have a good understanding of what is different about taxation in 2013 and beyond – and how it affects after-tax returns. An asset location strategy should consider the benefits of placing less tax-favored investments under tax-deferred or tax-free registrations in order to increase after-tax returns. The Columbia Management Learning Center is dedicating a series of blog articles to this important and time…

Inversions and the growing scrutiny of corporate tax avoidance

Walter Colsman, Senior Equity Analyst | September 29, 2014

While inversions are not new, the pace of inversions has rapidly increased in the last few years. We believe the debate over tax policy and perceived corporate tax avoidance will only grow from here. Investors should be cautious about companies that have taken aggressive tax stances. U.S. corporate tax rates are among the world’s highest (Exhibit 1) and current tax code calls for the taxation of all profits earned by U.S. companies, including…

Don’t throw the baby out with the bath water – The case for long muni bond funds

Catherine Stienstra, Senior Portfolio Manager | January 29, 2014

…l return opportunity they represent for long-term investors. Come April 15, millions of Americans will be staring at much higher tax bills and we suspect that many taxpayers may be caught off guard by the new higher levels of taxation. The highest federal income tax rate is 43.4%, resulting in many investors taking home barely 56 cents of each dollar earned. Municipal bonds can help investors keep more of what they earn, since the income may be e…

The new tax regime and stock compensation

Abram Claude, Vice President, Columbia Management Learning Center | October 30, 2013

…er voting rights, RSUs do not. Incentive stock options (ISOs) are similar to NQSOs in that recipients must exercise the options. However, ISOs have more rules than NQSOs when it comes to offering them, and there is no regular taxation at the time of exercise (though alternative minimum tax can still apply). Instead, ISOs are generally taxed at the time of sale. Also, ISOs can qualify for special tax treatment. If, after exercising the options, th…

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

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

The Net Investment Income Tax is a new, permanent tax that is effective beginning in 2013. Investors who break a certain modified adjusted gross income threshold may face a 3.8% surtax. This tax is in addition to any ordinary income or long-term capital gains tax obligations. The Columbia Management Learning Center is dedicating a series of blog articles to this important and timely “Navigating the New Tax Regime” topic. The net investment inc…