Revisit How to Prepare for December Year–End Capital Gain Distributions in Mutual Funds

There is still time to take care of your finances in 2016 while you are enjoying the holiday season. Tax planning is important to growing your wealth. If you are invested in mutual funds, now is the time to find out if your mutual fund will be paying year–end distributions of Capital Gains. You pay tax on your capital gains in taxable accounts. (not in non-taxable accounts) Mutual funds are required to pay out their net investment income to avoid taxes. Many declare dividends and capital gains in December each year to avoid those taxes.

What is a Capital Gain?

A capital gain is a profit made from the sale of any investment where the sale price exceeds the purchase price.

If you lost money on an investment and have sold it, then you have incurred a capital loss.

Should You Sell or Exchange Your Shares to Avoid a Capital Gains Distribution?

Some investors defer the sale of profitable investments until the lower long-term capital gains tax rate can be taken. Other investors do not want the capital gain. Every individual financial planning is different in how much taxes you pay, so I recommend you consult your tax or financial advisor for guidance.

All of the information you need is on your trade confirmations that you receive and will be used when preparing your tax return. Most brokerage houses give a year end summary that you should keep for your records so you can give to your accountant or tax advisor to help with your year-end planning. This document is sent out by mail or E mailed to you (depending on what you signed up for on your application). in late February or sometimes early March.  The shares of a mutual fund held in taxable accounts, short-term capital gains distributions are taxed to individuals at ordinary income rates. The short-term holding period is one year or less. Short-term capital gains are taxed as ordinary income tax rates, which can range from 10% to 39.6% for the year 2016 (check with you accountant on your rate).

Here Are Two Articles to Further Guide You:

Taxes on Income and Capital Gains for 2016 – Charles Schwab

• https://www.schwab.com/public/schwab/nn/articles/Taxes-Whats-New

Mutual Funds and Taxes – Fidelity

• https://www.fidelity.com/taxes/tax-topics/mutual-funds

Long term capital gains distributions are generally taxed at long term capital gain rates no matter how long shares have been held. The long-term holding period is more than one year. Long-term capital gains are taxed at long-term capital gains rates, which is usually less than ordinary tax rates. The long-term capital gains tax rate ranges from 0 – 20%, depending on your marginal tax bracket of the amount of money you make.

What Information You Need For calculating the Capital Gain?

• The security you purchased.
• The date you purchased.
• The price you paid.
• Your brokerage fees and commissions.
• The date of sale.
• The sell price.
• The sell commission.
• How many dollars you invested?
• The gross proceeds from the sale.

Simple Example of Long Term Capital Gain:

• Description of Security   100 shares ABC Mutual Fund
• Date Bought 1/3/2015
• Buy Price $1000
• Buy Commission $25
• Date Sold 2/28/2016
• Sell Price $1350
• Sell Commission $25
• Cost Basis = $1050 ($1000 + $25 + $25) (Buy Price + Buy and Sell Commission)
• Capital Gain $ 300 = Sell Price – Cost Basis   $1350-$1050 = $300 Long Term Capital Gain.

In the above example, there would have been a short term gain instead of a long-term capital gain if the investment was sold less than one year after purchase. In this case the 100 shares of ABC Mutual Fund was held over one year.

Most distributions are paid in December. If you are thinking about buying mutual funds in December, it’s a good idea before you purchase, call the mutual fund company or look on the website to see when the expected cap gain pay date is, (they sometimes change) so you do not have to pay tax this year without capitalizing on the gain. Mutual funds can make capital gains distributions even if the fund has lost money for the year.

Take the time today to review when your mutual fund is paying their Year–End Capital Gain Distributions before making any new mutual fund purchase at the end of the year.  It’s up to you to keep track of the documents necessary to report to the government each year. Taking responsibility for your finances. Track your investments and be an informed investor. Your journey to wealth is within reach!

For more information about investing email me at Bonnie@bonnieGortler.com

I have a free gift for you. Download chapter 1 of my book Journey To Wealth Get it here:  http://www.bgjourneytowealth.com/

To your health, wealth and happiness,

Bonnie Gortler
Wealth and Well-Being Coach

Bonnie S. Gortler

Bonnie Gortler, a Consultant, Coach, and Author, is a Wealth & Well-Being expert with over 35 years of experience in managing multi-million-dollar client portfolios at a top-rated investment firm. As the author of Journey to Wealth, Bonnie is dedicated to teaching the importance of risk management and achieving true financial well-being by integrating both the technical and mental aspects of investing. With an M.B.A. and certification as a life coach, Bonnie combines her passion for coaching, consulting, and blogging to inspire people globally. Her powerful techniques and winning mindset help others experience personal growth and financial success. Explore wealth-building tips, personal development strategies, and more at BonnieGortler.com, and discover how you can enhance your wealth and well-being.  


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