The only thing worse than paying capital gains on bullish mutual funds at the end of the year—is paying them on bearish ones. This article shows you how you can lower your tax bill next year.
Virtually all stock mutual funds pass along a proportionate share of their annual capital gains distributions to their investors each year. This happens regardless of whether the fund actually made money or not; every fund has appreciated positions that are liquidated during the year, and the gains from these profits must be reported to the shareholders.
Tax-managed funds are mutual funds that are managed so as to minimize declarable gains within the portfolio and include strategies such as harvesting losses on stocks to be carried forward for seven years. They also sell specific groups of shares with the highest cost basis and use them to offset other appreciated stock lots. These funds often have little or no capital gains distributions at the end of the year. An example of this type of fund is the Eaton Vance Tax-Managed Growth Fund.
Another tax-efficient alternative is an index fund. These funds are not actively managed either, and not only provide the growth of broader market, but do so without the annual gains generated from the buying and selling of the portfolio managers.
Finally, a third alternative for long-term investors is UITs. These investments are similar to mutual funds, except that they simply buy and hold a set portfolio of securities for a set period of time. Although gains will be realized when the trust matures, there are no declarable gains for the duration of the trust, which can last for up to five years in some cases.
- This article is intended to be purely educational and should not be construed as tax advice. For more information, consult your investment or tax advisor.
By ehow.com
No comments:
Post a Comment