Fourth quarter tax tip: If you hold any mutual funds in non-retirement, taxable 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?
Because of 2022’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 may 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, or, use this site to take you directly to your fund(s)’ relevant page: https://mutualfundobserver.com/discuss/discussion/60074/2022-year-end-capital-gains-distribution-estimates
More helpful information on the nature of capital gain distributions is provided by this article, too:
https://humbledollar.com/2019/11/the-unwanted-payday/
If you would like help in the fourth quarter – figuring out 2022 taxable income while there is still time to make adjustments before year-end, schedule a tax planning appointment with your CPA or schedule a 30-minute call to talk with us here: https://go.oncehub.com/HollyPThomas.
