Here are two tax pitfalls to be aware of
Investing in mutual funds is an easy way to diversify a portfolio, which is one reason why they’re commonly found in retirement plans such as IRAs and 401(k)s. Beware of these two tax pitfalls if you hold such funds in taxable accounts, or are considering such investments:
- Mutual funds with high turnover rates can create income that’s taxed at ordinary-income rates. Choosing funds that provide primarily long-term gains can save you more tax dollars because of the lower long-term rates.
- Earnings on mutual funds are typically reinvested, and unless you keep track of these additions and increase your basis accordingly, you may report more gain than required when you sell the fund. Since 2012, brokerage firms have been required to track and report to the IRS your cost basis in mutual funds acquired during the tax year. So make sure to keep careful track.
If your mutual fund investments aren’t limited to your tax-advantaged retirement accounts, we’d be pleased to help you assess the potential tax impact and suggest ways to minimize your tax liability. Contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com for more information.
Mr. Komos is the Partner-in-Charge of Ciuni & Panichi, Inc.’s Tax Department. He has experience in all facets of taxation for individuals, closely held businesses, their owners and key personnel. His clients are in a wide range of industries, including manufacturing, service, real estate, and construction.
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