With tax season now in the rear view mirror, many of us are licking our wounds after a shellacking from Uncle Sam. I heard from a lot of people this year that they owed far more to the IRS than they expected to. Come to find out, the IRS changed the withholding tables with the new tax bill. Rather than overwithholding throughout the year and getting a refund in April, thousands across the country underwitheld & had to pay out of pocket.
Another item factoring into last year’s fat tax bills was capital gains. Mutual funds and ETFs distribute capital gains back to shareholders, which are taxable based on the amount of time the fund owned the holding. As an investor, receiving an unwanted taxable distribution can be inconvenient.
As a reader recently put it: “For the second year in a row I’ve gotten killed with large capital gains from my mutual funds, resulting in a large tax bill. Aside from owning stocks on my own, how can I eliminate or minimize these capital gains?”
Today’s post will answer this exact question. For those of you who’ve seen the adverse tax consequences of capital gains distributions, read on to learn a few strategies you could use to minimize the bite.