Practicing good discipline and planning for the future with your mutual funds is always smart. But it’s a complicated process. Working with an experienced and trusted advisor can make a big difference in reaching your goals. Along the way, you’ll want to keep some of these key tax concerns in mind.
Possible Mutual Fund Pitfalls
First things first, transfers might actually read as a capital gain on paper. Before you move any mutual fund shares to another one of your accounts, you should check with your broker whether this activity will count toward a taxable event or not.
Another type of pitfall can happen if you don’t time your sales in the most strategic way possible. Long-term capital gains usually come with a lower tax rate. But if you’ve had the assets for under 12 months, then those sales could fall into the short-term capital gains tax bracket. It’s better if you’re able to hold onto your mutual fund shares past that one-year mark.
Do You Have Any Tax-Efficient Options?
You want to diversify your portfolio. Not increase your tax liability! That’s why you want to think carefully before making any transfers between your accounts or make other changes. Assuming your mutual fund investments aren’t related to your 401(k) retirement account or a traditional IRA, there are actually a few tips that might help you out.
One option is to look into making charitable gift options from your appreciated mutual fund shares. It’s a better option than donating cash because the tax laws will let you deduct that full market value from your return—without having to claim the tax gain from how much it is appreciated. When you’re already planning to support a good cause sometime during the year, this is a smart way to watch out for your own interests too.
That being said, there are also options for saving money just by how your mutual funds are managed. Tax concerns are one thing, but you don’t want to overpay because of the operating costs associated with a particular mutual fund. Especially when there’s a more cost-effective option with something that’s performing similarly.
No matter what, be sure to maintain your own records for all of the activities throughout the year. You’ll want to be able to confirm that what your broker reported to the IRS is consistent with your numbers.
Let NSO & Company Help with Your Tax Planning!
Our accounting firm specializes in helping business owners, families, and individuals understand their options related to the tax code. We know how to ask the right questions and help you strategize throughout the year. Let our experience help lower your liability and stay on track with your financial goals!
The majority of our clients are based in the greater Indianapolis area. But we’re happy to work with individuals throughout the state of Indiana and even across the country. If you want to see whether we’d be a good fit, please schedule a quick consultation. You can give NSO & Company a call at (317) 588-3131 to put a meeting on the calendar. We hope to hear from you soon!