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End of Year Tax Planning Strategies Part 1: Capital Gains from Mutual Funds

End of Year Tax Planning Strategies Part 1: Capital Gains from Mutual Funds

| November 10, 2020
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2020 has been a volatile year in the stock market. During times of high volatility, active mutual fund managers are buying and selling stocks in the hopes of improving returns for their investors. One common practice, referred to as window dressing, is selling winning stocks before the end of the year to lock in gains and performance.

How do trades made by a mutual fund manager affect you? If you own mutual funds outside of your retirement accounts, the capital gains realized in the fund are passed through to you, the end investor.  In a year like 2020 in which many funds are still down for the year, you can still pay taxes on gains even if your investment lost money this year!

How can you potentially avoid paying the taxes? If you sell the mutual fund before the capital gains are distributed, you will not be subject to the capital gains distribution. You may still owe taxes on the sale depending on how much you paid for the fund so beware.  Confusing?  That's right! We recommend working with your tax or financial professional before making the changes.  

Blackrock has a tool for advisors to calculate estimated capital gains taxes for our clients. If you are interested in taking advantage of this complimentary service that we offer for our tax and financial clients, please reach out. Death and taxes are the only things guaranteed in this life, and we try to help our clients avoid both!  Please see the attached flyer for more information on iShares. 

If you are confused by this email or you have not done this work with your accountant or advisor, why not take advantage of this time to see if you’re on track to pursue your financial goals? Call and schedule an appointment today.

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