Fourth Quarter Tax Help – Check Your Fund Distributions

Fourth quarter tax topics. If you hold any mutual funds in non-retirement accounts, now is the time to begin checking on “projected capital gain distributions.”

What are projected capital gains distributions?

When mutual funds sell securities for capital gains, they don’t pay taxes on them. Their shareholders do. The funds pass the gains through to shareholders each year through reporting them on Form 1099. For many shareholders, the 1099 gains come as a surprise tax bite. The value of the fund may not have increased at all in the past year, but yet, they still have to pay tax on capital gains.

Why are these important for 2020?

Because of 2020’s roller coaster market ride, many funds are going to show larger-than-normal capital gains, regardless of what happens to their value between October and December. For the funds’ shareholders, that could mean lots of extra taxes. Even if you bought the fund mid-year, you will still get a capital gain distribution.

What To Do About Large Distributions

You can look up your fund’s projected distributions at the fund’s website.

More helpful information is provided by these articles:

https://www.advisorperspectives.com/commentaries/2020/09/11/open-season-capital-gains

https://humbledollar.com/2019/11/the-unwanted-payday/

If you would like help in the fourth quarter – figuring out your 2020 taxable income while you still have time to make adjustments before year-end, schedule a tax planning appointment with your CPA (but after October 15, the final extension deadline for this year) or schedule a 30-minute call to talk with us here: https://go.oncehub.com/HollyPThomas.

Holly Donaldson

Holly P. Donaldson, CFP® writes and consults on the psychology of money. Her fee-only, product-free financial planning practice focuses on increasing financial self-efficacy for those seeking a financial navigator to help them make good decisions. She is the author of The Mindful Money Mentality: How to Find Balance in Your Financial Future (Porchview Publishing, 2013) and publisher of the award-winning monthly e-letter, "The View From the Porch." With a fully virtual practice in Seminole, Florida, she primarily serves clients located in the Tampa, St. Petersburg, and Clearwater areas. Holly will also work with clients who are a good fit located elsewhere in the United States.

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