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The Tax Hit That Loyal Investors Will Take In 2014
FYI: (Follow-Up Article) If you are the kind of steadfast investor who buys a mutual fund and holds it forever, prepare to pay for your loyalty next April, when you settle up your 2014 tax bill. At the end of this year, many mutual funds are expected to distribute sizeable capital gains to shareholders who will have to pay taxes on them. Regards, Ted http://www.reuters.com/assets/print?aid=USKCN0IA1X220141021
Are investors (in the U.S.) the ONLY people who make money (capital gains) then bitch about it...? I've never heard a ditch digger say "well I'd dig another ditch but you know I'm going to have to pay taxes" just wondering?
Are investors (in the U.S.) the ONLY people who make money (capital gains) then bitch about it...? I've never heard a ditch digger say "well I'd dig another ditch but you know I'm going to have to pay taxes" just wondering?
TB,
As I recall, Massachusetts colonists ignited the formation of this country based on an individuals right to bitch about taxes (Boston Bay Tea Party). I, for one, am glad they did.
Article does reference your point (I assume you read the article). Stopping your comment there makes me think you didn't. We all pay taxes.
To me, the article's focus on the long term capital gains (holding periods of longer than a year) is worthy of exploration. As investors, we should understand the potential impact of taxes on our investments. I hold many of my investments in Roth IRAs for this very reason.
As for LT capital gains, many mutual funds have carried over tax losses from the 2009 recession that in large part have offset subsequent LT gains. This dynamic may be ending as gains have now out paced losses (We are back were we started and then some).
Paying taxes unnecessarily is something I aim to guard against. Many of us don't think in terms of "after tax gains" until "after we are taxed" on our gains.
The investor does not make money on a capital gain realized and paid out by a fund. When the gain is paid out (either in cash or shares), the NAV of the fund decreases by the same amount. But the investor has to pay taxes on this "gain". When the investor sells the fund, he doesn't have to pay gains on the gains paid earlier.
Paying taxes on an actual gain that I realized when I sold a fund has never been a problem. Dave
I wonder whether many investors will move to ETFs from their funds in taxable accounts after being hit by large taxable distributions this year, or at least send their new money to ETFs from now on.
I wonder whether many investors will move to ETFs from their funds in taxable accounts after being hit by large taxable distributions this year, or at least send their new money to ETFs from now on.
I think more investors will move either to traditional index mutual funds, or their ETF counterparts, after seeing large capital gain distributions. Especially since the index funds and indexed ETFs most likely will have no capital gains distributions, and just as good and probably better performance. Or as you said, at least with new money.
"Stock fund investors could be harder-hit, said Morningstar analyst Russel Kinnel. He estimates that U.S. domestic stock funds might be sitting on gains of around 20 percent and could end up paying 16 or 17 percent of their value to shareholders as gains."
'Today’s reactionary history of early America, reductive, unitary, and, finally, dangerously anti-pluralist, ... compresses a quarter century of political contest into “the founding,” as if the ideas contained in Thomas Paine’s “Common Sense,” severing the bonds of empire, were no different from those in the Constitution, establishing a strong central government. '
>> Not quite a sophisticated reading of the history or the events or the reasons. This is sort of a start, and droll as well:
Taxing Growth: "Taxes drive a wedge between the market value of an activity and the amount received by the producers of it. When taxes are imposed on the returns from work, the risk is that less labour will be supplied. At the margin, as and when they can, people will choose untaxed leisure over taxed work. Some may even choose a life on benefits." Encouraging Growth
Comments
I've never heard a ditch digger say "well I'd dig another ditch but you know I'm going to have to pay taxes" just wondering?
As I recall, Massachusetts colonists ignited the formation of this country based on an individuals right to bitch about taxes (Boston Bay Tea Party). I, for one, am glad they did.
Article does reference your point (I assume you read the article). Stopping your comment there makes me think you didn't. We all pay taxes.
To me, the article's focus on the long term capital gains (holding periods of longer than a year) is worthy of exploration. As investors, we should understand the potential impact of taxes on our investments. I hold many of my investments in Roth IRAs for this very reason.
As for LT capital gains, many mutual funds have carried over tax losses from the 2009 recession that in large part have offset subsequent LT gains. This dynamic may be ending as gains have now out paced losses (We are back were we started and then some).
Paying taxes unnecessarily is something I aim to guard against. Many of us don't think in terms of "after tax gains" until "after we are taxed" on our gains.
Paying taxes on an actual gain that I realized when I sold a fund has never been a problem.
Dave
"Stock fund investors could be harder-hit, said Morningstar analyst Russel Kinnel. He estimates that U.S. domestic stock funds might be sitting on gains of around 20 percent and could end up paying 16 or 17 percent of their value to shareholders as gains."
Not quite a sophisticated reading of the history or the events or the reasons.
This is sort of a start, and droll as well:
www.newyorker.com/magazine/2010/05/03/tea-and-sympathy-2
'Today’s reactionary history of early America, reductive, unitary, and, finally, dangerously anti-pluralist, ... compresses a quarter century of political contest into “the founding,” as if the ideas contained in Thomas Paine’s “Common Sense,” severing the bonds of empire, were no different from those in the Constitution, establishing a strong central government. '
etc.
"Taxes drive a wedge between the market value of an activity and the amount received by the producers of it. When taxes are imposed on the returns from work, the risk is that less labour will be supplied. At the margin, as and when they can, people will choose untaxed leisure over taxed work. Some may even choose a life on benefits."
Encouraging Growth