How To Avoid The Tax Surprise On Your Mutual Fund Investments

Capital gains tax rates have a history of changing cyclically, with all the last change being a rise in the highest long term rate for top-income taxpayers in 2013. Underneath the American Taxpayer Relief Act of 2012, the most notable tax rate on capital gains has long been permanently increased to 20% for single and married filers within the 39.6% tax bracket.



Furthermore, the modern IRC Section 1411 Medicare surtax imposes a 3.8% tax on certain investment income. This new Medicare tax will often pertain to investment income that is definitely subject to the taxes, including capital gains. This new tax is applicable to single filers with incomes above $200,000, and married taxpayers with incomes over $250,000. The world wide web effect of both these tax increases can be a new 23.8% tax rate for higher earners - the greatest rate for long-term how can i avoid paying capital gains tax since 1997.

Mutual funds will be required by law to distribute net income annually such as dividends and net realized capital gains in the fund’s assets, reducing net asset value and cost accordingly. Distributions are used in a shareholder’s income tax return and be subject to taxation when they are made, regardless of whether these are received or reinvested. The number of mutual funds making capital gains distributions has increased significantly over recent years. Morningstar reports that two-thirds of equity mutual funds distributed capital gains in 2015 - over twice the number of funds with capital gains in 2011.

Unfortunately, many equity funds usually are not managed using the tax liabilities of investors planned. Thanks to the increasing popularity of tax-deferred accounts - including 401(k)s and IRAs - many investment managers no more consider minimizing taxes when reaching investment decisions. Therefore, they may have shortened holding periods and increased trading frequency, generating more capital gains distributions.

After years of equity market gains, capital gains are piling up for several mutual funds, generating unanticipated tax bills for investors. They should comprehend the potential impact of those taxes on their own portfolios, and consider their methods of mitigating their tax bill.

Minimizing your capital gains tax burden necessitates a comprehensive financial analysis by investment professionals. At Werbain Rubin, we’re invested in assisting you achieve your goals by taking advantage of your financial resources, and this includes reducing the impact of capital gains taxes.

The knowledge herein is general in general and must not be considered insurance, legal or tax advice. Please talk to an insurance legal or tax professional for extra info on specific situations.

All investments involve risk, including the loss of principal and cannot be guaranteed against loss by a bank, custodian, or another financial institution.

WR 16-022

Investment advisory services furnished by Werba Rubin Wealth Management, LLC (“Werba Rubin”). Securities transactions are given via a non-affiliated entity, Loring Ward Securities Inc., member FINRA/SIPC.

© 2016 WERBA RUBIN ADVISORY SERVICES, LLC