Thursday’s need-to-know money news

services_billToday’s top story: The pros and cons of automatic bill payments. Also in the news: When it’s time to sell a mutual fund, what you need before you file your taxes, and when to consider locking your Social Security number.

Pros and Cons of Automatic Bill Payments
Convenience could come at a price.

5 Reasons to Sell a Mutual Fund
The five signs that point to sell.

What you need before you file your taxes
Gather all your documents.

Should You Lock Your Social Security Number?
Guarding against identity theft.

Q&A: Capital gains tax on mutual funds

Dear Liz: My mother, who is approaching 100 and in good health, has a significant mutual fund holding. It is mostly made up of capital gains. She does not need this fund for her daily living expenses. The question she has: Are the taxes on disposition the same before or after she dies? I am thinking of things like the capital gains tax exemption (never used) as well as inheritance taxes.

Answer: The capital gains tax exemption applies to the sale of a primary residence — a home, not a mutual fund. If your mother sold the fund today, she would owe capital gains tax on the difference between the sale price and her “cost basis.” Her cost basis is what she paid for the fund originally plus any reinvested dividends. The top federal capital gains tax rate is 20%, although most taxpayers pay a 15% rate.

If her objective is to get the maximum amount to her heirs and minimize the tax bill, she should bequeath this investment to them at her death. Then the mutual fund will get a “step up” in tax basis to the current market value. When the heirs sell the investment, they’ll only owe taxes on the appreciation that occurs after her death (if any).

You asked about inheritance taxes, but only a few states levy taxes on inheritors. Typically, it’s the estate that would pay the taxes, and only those above certain amounts. In 2016, the federal estate taxes exemption is $5.45 million

Q&A: Calculating capital gains and losses

Dear Liz: With my father’s recent passing, I received a substantial inheritance, much of it in the form of stocks and mutual funds. If I sell these assets, do I calculate the capital gains and losses based on the date I took possession of the assets? Or do I use their value on the date of his death?

Answer: Typically you’d use the date of his death. If your father’s estate was very large and owed estate taxes, however, the executor may have chosen an alternative valuation date six months from the date of death. This option is available if the value of the estate would have been lower on the later date.

There is a circumstance in which your basis would be the value on the date the assets were turned over to you, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting U.S. If the executor elected the alternate valuation date, but the assets were actually distributed to you before that date, then the basis is the fair market value on the date of distribution, Luscombe said.

Inherited assets usually get a “step up” in basis when someone dies, so there’s no tax owed on any of the growth in those assets that occurred while the person was alive. Inheritors have to pay taxes only on the growth that occurs between the date of death (or the alternate evaluation or distribution date) and when the assets are sold.

The assets would get long-term capital gains treatment regardless of how long you’d owned them, which is another helpful tax break.

Monday’s need-to-know money news

22856641_SAToday’s top story: How Americans sabotage their savings. Also in the news: Ways you can make your children’s college dreams come true, the best credit cards for holiday shopping, and the multitude of ways you can get a free copy of your credit score.

5 Ways Americans Sabotage Their Savings
Stop doing them.

The Simple Path to Making Your Children’s College Dreams Come True
Relatively speaking.

3 Best credit cards this holiday season
Maximizing bonuses.

The Many Ways You Can Get a Free Copy of Your Credit Score
You have no excuse not to get one.

Babies born today get free $500 mutual fund investment
One day only!

Friday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: How to pay off your student loans. Also in the news: Understanding your mutual fund fees, the pros and cons of prepaid debit cards, and timeless money tips for new graduates.

The Wrong Ways to Get Rid of Your Student Loans
Not paying them is not an option.

A Guide to Understanding Mutual Fund Fees
Making sense of your investments.

Prepaid Debit Cards: With all the Scams, are They Worth It?
Choose wisely.

7 Timeless Money Tips for Graduates
You’re on your own now!

These kids are better with money than you are
But it’s never too late.