The 2020 Election

Thankfully at 4:05 on Tuesday, November 3, 2020, my 2020 election experience ended.

I went and voted.

No, I did not go vote early or stand in line for hours.  Thankfully, all of you had previously voted, and when I arrived, there were twelve poll workers and one voter – me.

I say my election experience ended simply because my casting my vote was completing my part.

How about you?  Did you vote?

The Mutual Fund Taxes are Coming

What Gains are in your Mutual Fund?

Tax frenzy may reach a fever pitch in April, but it is a mistake to only consider your tax bill around tax time.

. Whether you are just starting out or are a longtime investor looking to make changes to your portfolio, understanding a fund’s tax efficiency can mean more money in your pocket in the long run.

Tax-Adjusted Return

One of the quickest ways to understand a fund’s tax implications is to compare its pretax return with its tax-adjusted return. The tax-adjusted return accounts for a fund’s capital gains, dividends, and interest during the period, but it does not include tax consequences from selling the fund in the future.

Each year, mutual fund shareholders face the prospect of receiving capital gains distributions from their mutual funds. These capital gains distributions are the result of the mutual fund selling securities within the fund. For instance, if a mutual fund sells its Facebook holdings, it is forced to distribute 95% of the gain on that sale to fund shareholders.

Short-Term Capital Gains Distributions

The difference between short-term capital gains and short-term capital gains distributions is what may confuse investors. For instance, if you own a mutual fund for a few months and then sell out for a gain, you have incurred a short-term capital gain. If you don’t have enough losses to offset this gain, the net result is a short-term gain, and you will have to pay ordinary income tax rates on the amount of money you made as a result of the sale.

In the previous scenario, you can use any short-term gains you might realize against other capital losses to reduce your tax liability in which you gained from buying and selling shares in the mutual fund. That is important because it isn’t quite the case when it comes to short-term capital gains distributions from a mutual fund.

Instead, if you own a mutual fund that subjects you to short-term capital gains distributions, then you must report them on your tax return as ordinary income. Unlike short-term capital gains, capital losses do not offset short-term capital gains distributions and reduce your tax liability.

Act Now to Reduce Your Taxes

If you want to reduce or eliminate your mutual fund’s tax burden, the time is now at hand before the actual year-end distributions occur.

According to BlackRock, as of November 5, 2020, over 2,000 mutual funds have announced estimated capital gain distributions – has yours?

Contact us, and we can work with you to avoid pending capital gains distributions and find tax-loss harvesting opportunities.

Got something on your mind or have a question?

All of this can occur even at a distance.

Call us at 214-239-4700 or click to set up a ZOOM MEETING

Michael Tannery CPA CDFA® AIF® ● CEO
Registered Principal | Tannery & Company

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 The opinions expressed in this material are for general informational purposes only and is not a substitute for professional advice.  Individual circumstances do vary.


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