Friday, December 5, 2014

5 Year-End Tax Tips for Investors

On top of holiday preparations and celebrations in December, there are some year-end financial tasks that require attention. Many of those tasks on the financial to-do list have a tax component - specifically, avoiding unnecessary taxes on your investments, or worse, incurring a penalty.
Here are some reminders of tax consequences to consider before the new year rolls around:
1. Watch taxes on mutual funds. Mutual fund managers regularly sell securities to rebalance or accommodate shareholder redemptions. That creates capital gains for shareholders, even those with an unrealized loss on their mutual fund investment. This is particularly true for actively managed mutual funds, which have greater turnover than index funds.
But even if you are the owner of a mutual fund with overall gains, you may have a tax consequence for gains that occurred before you purchased it.
“If you are invested in a mutual fund, and each year, whenever there are gains in that fund, as there have been for the last few years, the fund distributes those gains on an annual basis to whoever is the holder of the mutual fund at the time of distribution,” says Steven Wallman, CEO of Folio Investing and a former commissioner on the Securities and Exchange Commission. “You end up with a very large potential tax liability, even though a good amount of that return might not have been yours." 
A worst-case scenario can occur when a person buys a mutual fund just before the tax distribution is made, then sells shortly thereafter, Wallman explains. “You have incurred the taxes but haven't gotten much of the return. That’s something people need to understand and think about. If you are investing in a mutual fund, it frequently does not provide an optimal tax result,” he says...

To read full article, click here.
Source: Kate Stalter (

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