For the time being, I’ll set aside many post-election questions about whether major tax changes may be ahead. No one knows. Until early next year, we don’t even know which party controls the Senate.
Still, before the arrival of 2021, there are still many opportunities for many taxpayers to benefit from considering some old-fashioned tactics and warnings that remain as important and timely as ever. ..
Pay attention to payment
At this time of the year, investors tend to overlook tax issues related to capital gains distribution by mutual funds, especially equity funds. Mutual funds typically distribute all or almost all of their net realized capital gains (if any) to investors in the final quarter, especially in December. In some cases, these payments can be a surprising headache, and tax experts say they can usually be easily avoided with a small amount of research. This topic may sound counter-intuitive, especially given the volatility of the market this year, so it’s worth remembering one more thing.
If you plan to make a large investment trust investment in your taxable account over the next few weeks, first find the answers to a few questions. Is the fund planning a large capital gains distribution this year? If so, how much and what is the date to qualify for payment? For most major fund groups, this information should be available on the website.
This can be important as these distributions are usually taxable if the fund is stored in a taxable account. This is true whether you are a taxpayer investing in a fund in a taxable account shortly before the date of eligibility for distribution, or reinvesting money in additional fund stock. Some fund groups, such as T. Rowe Price, have long posted articles explaining the basics. Morningstar has published a useful article on this subject by Christine Benz, Director of Personal Finance.
Year-end checklist for taxpayers in 2020
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