Mutual Fund Distributions and Capital Gains Taxes 2011
I was never interesting enough to be invited to the big parties.
I understand.
Tough to imagine, huh? Didn't all the well-liked kids want to grow up to be financial bloggers? Thank heavens I wasn't born within the 1920s.
I wouldn't have known any of the speakeasy locations.
But, maybe that's what saves my liver.
Regardless, just like speakeasies were only whispered about then, you will find there's little known tax secret now in the mutual fund world.
It's my hypothesis that "the man" disguises what a big tax break this secret can be by giving it the boring title of "Capital Gains Distributions.
" Yawn.
Someone see my bed sheets around here? Here's the scoop: Do you know when there's a pizza pie with eight slices but there are 12 people? There's no fair strategy to cut the pizza.
Some individuals get more, and others less.
Mutual funds have a similar problem.
Consumers buy and sell mutual fund shares every day, while the fund's managing team buys and sells shares of stocks or bonds.
Typically (hopefully) these trades bring about an increase in value.
Here's where the bad news starts: every time a fund sells for a profit, there is a tax due to investors.
How does the mutual fund decide who to tax? Imagine the nightmare of trying to split up the "tax pizza" among a large number of investors who owned the fund for differing time frames? Yuck.
So, funds took the easy way out.
They decided on a day at the conclusion of the year.
Anyone who owns the fund that day eats the tax.
If the fund bought Apple 10 years ago for $30 per share and sold it recently for $375, you'll be on the hook for your portion of the whole "she-bang," even if you've only owned the fund for a few days.
As mom says, "Life ain't fair.
" The cool part (to use the technical term), is that fund families actually publicize ahead of time how much each fund is anticipated to pay out as "capital gains distributions," as it's called.
This announcement is the speakeasy password.
Nobody listens until they're hit next year with a nice, fat capital gains tax bill.
That hurts.
Listed here are what some large fund and ETF companies are estimating, as of today (November 30, 2011).
American Funds have only three funds announcing a capital gain distribution this year, with the earliest occurring 12/22.
Vanguard has over 60 funds with capital gain distributions or dividend distributions near year end, and Ten Exchange Traded Funds.
The very first will take place 12/15.
Fidelity has over Ninety funds paying capital gain distributions in 2011.
The very first is on 12/5.
Major ETF consumers will be happy to hear that 99 percent of iShares exchange traded funds will be capital gain distribution-free this year.
Only 2 iShares ETFs are expected to have distributions, with an ex-date of 12/1.
Lastly, as of this writing, Franlin Templeton funds continue to have many capital gain distributions listed as pending, but the DynaTech fund ex-date is tomorrow, December 1st.
This is the exception, though.
most of Franklin Templeton's funds have distributions listed as December 15th or later.
What should you do relating to this information? 1) Determine if you own the fund inside an IRA, Roth IRA, 401k or similar tax shelter.
If so, none of this is going to affect you! Whew! Go consume a doughnut.
If the fund isn't in a tax shelter, keep reading, minions.
2) Figure out your tax.
This really is easier than it sounds.
Multiply the distribution amount by the quantity of shares you have.
This number is your full distribution amount.
The highest level capital gain tax rate in 2011 and 2012 for the United States is 15 percent if you've held the fund more than a year.
Multiply your distribution amount by Fifteen percent.
Bingo.
This number is your maximum tax which will be due if you do nothing.
3) Judge your reaction.
If you head for the liquor cabinet, grab a Barbara Streisand album or can't stop shaking, it's probably time to perform evasive movements.
Read on.
If your pulse remains even or you start to giggle, you're done! Go eat a doughnut.
4) Work out your capital gain.
If you decide to sell the fund to prevent the capital gain, you might cause a ton of tax difficulties for yourself if you've held it forever.
This is the mutual fund double-whammy.
These people "getcha" with the manager's taxes, but they "getcha" again with taxes due based on your sale.
Look for the share price you used to originally buy the fund and today's fund information (we use bigcharts.
com historical quotes to estimate the tax if we can't locate the purchase information.
) 5) Duplicate step #3 above.
Now, if your tax to sell will be high, execute more comprehensive tax planning before doing anything.
For now, go eat a doughnut! If the capital gain distribution is high enough and your personal capital gain tax low enough to justify a sale, read on.
6) Sell the fund.
7) Don't aim to time the market.
Find one more fund similar to the one you sold.
Wash sale rules require that you stay out of a fund for Thirty days if you're planning to claim a loss.
By using this method, you legally sidestep a mutual fund disaster.
Now, even if-like me-you weren't the coolest kid at the party, you'll be able to throw your own private party with all of your tax savings.
PS-This method doesn't benefit everyone, and shouldn't be viewed as precise financial advice.
If you work with an accountant, have a financial advisor, or know a money geek close to your personal situation, run it by them before making any changes to your portfolio.
You might end up damaging your overall plan to save a few bucks!
I understand.
Tough to imagine, huh? Didn't all the well-liked kids want to grow up to be financial bloggers? Thank heavens I wasn't born within the 1920s.
I wouldn't have known any of the speakeasy locations.
But, maybe that's what saves my liver.
Regardless, just like speakeasies were only whispered about then, you will find there's little known tax secret now in the mutual fund world.
It's my hypothesis that "the man" disguises what a big tax break this secret can be by giving it the boring title of "Capital Gains Distributions.
" Yawn.
Someone see my bed sheets around here? Here's the scoop: Do you know when there's a pizza pie with eight slices but there are 12 people? There's no fair strategy to cut the pizza.
Some individuals get more, and others less.
Mutual funds have a similar problem.
Consumers buy and sell mutual fund shares every day, while the fund's managing team buys and sells shares of stocks or bonds.
Typically (hopefully) these trades bring about an increase in value.
Here's where the bad news starts: every time a fund sells for a profit, there is a tax due to investors.
How does the mutual fund decide who to tax? Imagine the nightmare of trying to split up the "tax pizza" among a large number of investors who owned the fund for differing time frames? Yuck.
So, funds took the easy way out.
They decided on a day at the conclusion of the year.
Anyone who owns the fund that day eats the tax.
If the fund bought Apple 10 years ago for $30 per share and sold it recently for $375, you'll be on the hook for your portion of the whole "she-bang," even if you've only owned the fund for a few days.
As mom says, "Life ain't fair.
" The cool part (to use the technical term), is that fund families actually publicize ahead of time how much each fund is anticipated to pay out as "capital gains distributions," as it's called.
This announcement is the speakeasy password.
Nobody listens until they're hit next year with a nice, fat capital gains tax bill.
That hurts.
Listed here are what some large fund and ETF companies are estimating, as of today (November 30, 2011).
American Funds have only three funds announcing a capital gain distribution this year, with the earliest occurring 12/22.
Vanguard has over 60 funds with capital gain distributions or dividend distributions near year end, and Ten Exchange Traded Funds.
The very first will take place 12/15.
Fidelity has over Ninety funds paying capital gain distributions in 2011.
The very first is on 12/5.
Major ETF consumers will be happy to hear that 99 percent of iShares exchange traded funds will be capital gain distribution-free this year.
Only 2 iShares ETFs are expected to have distributions, with an ex-date of 12/1.
Lastly, as of this writing, Franlin Templeton funds continue to have many capital gain distributions listed as pending, but the DynaTech fund ex-date is tomorrow, December 1st.
This is the exception, though.
most of Franklin Templeton's funds have distributions listed as December 15th or later.
What should you do relating to this information? 1) Determine if you own the fund inside an IRA, Roth IRA, 401k or similar tax shelter.
If so, none of this is going to affect you! Whew! Go consume a doughnut.
If the fund isn't in a tax shelter, keep reading, minions.
2) Figure out your tax.
This really is easier than it sounds.
Multiply the distribution amount by the quantity of shares you have.
This number is your full distribution amount.
The highest level capital gain tax rate in 2011 and 2012 for the United States is 15 percent if you've held the fund more than a year.
Multiply your distribution amount by Fifteen percent.
Bingo.
This number is your maximum tax which will be due if you do nothing.
3) Judge your reaction.
If you head for the liquor cabinet, grab a Barbara Streisand album or can't stop shaking, it's probably time to perform evasive movements.
Read on.
If your pulse remains even or you start to giggle, you're done! Go eat a doughnut.
4) Work out your capital gain.
If you decide to sell the fund to prevent the capital gain, you might cause a ton of tax difficulties for yourself if you've held it forever.
This is the mutual fund double-whammy.
These people "getcha" with the manager's taxes, but they "getcha" again with taxes due based on your sale.
Look for the share price you used to originally buy the fund and today's fund information (we use bigcharts.
com historical quotes to estimate the tax if we can't locate the purchase information.
) 5) Duplicate step #3 above.
Now, if your tax to sell will be high, execute more comprehensive tax planning before doing anything.
For now, go eat a doughnut! If the capital gain distribution is high enough and your personal capital gain tax low enough to justify a sale, read on.
6) Sell the fund.
7) Don't aim to time the market.
Find one more fund similar to the one you sold.
Wash sale rules require that you stay out of a fund for Thirty days if you're planning to claim a loss.
By using this method, you legally sidestep a mutual fund disaster.
Now, even if-like me-you weren't the coolest kid at the party, you'll be able to throw your own private party with all of your tax savings.
PS-This method doesn't benefit everyone, and shouldn't be viewed as precise financial advice.
If you work with an accountant, have a financial advisor, or know a money geek close to your personal situation, run it by them before making any changes to your portfolio.
You might end up damaging your overall plan to save a few bucks!
