December 11, 2009
In the first post I talked about the taxability of mutual fund distributions. December is the month when most funds pay out capital gains if they have them. The distributions are taxable, so how to reduce the bite? One way is to look at the your total tax cost for your fund. Mutual fund investors often reinvest their distributions in more shares of the same fund and over the years have many purchases at different prices over time. Some of those reinvestments may have taken place at prices higher than the current market price. This provides the opportunity to swap those high-cost shares into shares of another fund in the same family. It costs you nothing and will book a capital loss that can be used to offset your gains. You can swap back into your original fund later - but beware of IRS "wash sale" rules.
Next posts on this topic we'll talk about how to avoid a "wash sale" and handling gains & losses on stocks.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).