RE-ASSESS TAX-EFFICIENT SHORT-TERM INVESTMENTS FOR HIGHER RETURNS

• Published in: Practical Tax Strategies 2006-11, Vol.77 (5), p.283
• Main Authors: Vandenburgh, William M, Harmelink, Philip J
• Format: Article
• Language: English
• Subjects: Advisors; Alternative minimum tax; Auctions; Bond funds; Federal funding; Federal Reserve monetary policy; Interest rates; Investment policy; Money markets; Municipal bonds; Property taxes; Short term; Tax rates; Tax returns; Taxation; Treasuries; Treasury bills; Volatility
• ISSN: 1523-6250

As of Aug 2006, investors were presented with the highest short-term interest rates since 2001, as a direct result of 17 consecutive Federal Reserve Board rate increases from Jun 2004 to Jun 2006. This article advises and updates tax professionals on investment opportunities in the area of short-term money products and their inherent tax attributes. The issues examined include alternative money investments, 2006 market volatility, significant increases to T-bill rates since 2004, the Federal Reserve Board's monetary rate increases, and major factors in evaluating a cash investment. Adding to the significance of re-assessing clients' money fund holdings is the volatility seen in the equity markets during the first half of 2006. The ultimate return that investors receive on their cash holdings is the after-tax return. Calculating this necessitates fully incorporating the impact of taxation on the federal, state, and potentially even the local level. For clients with significant cash holdings, having a tax advisor review these investments periodically is clearly worthwhile.