Year-End Tax Planning for Unexpected Gains 

Dear Clients & Friends,  

Fall is officially underway as the air gets cooler and the trees change into their stunning orange, yellow and red leaves. Not only that, but the holidays are around the corner with Thanksgiving only a week away! Before we get too caught up in family time, it’s a good idea to take some time to take care of a few chores that are less fun but just won’t wait – like tax planning.  

Those of you with taxable investment accounts that hold mutual funds, separately managed accounts (SMA), stocks, and/or exchange traded funds, should be especially alert! After a down year for the market, you might think that capital gains taxes will be the least of your worries, but that would be a mistake. The investment managers of these funds know what they are doing. They saw the downturn in the market coming as early as last spring and sold several of their long-term positions in anticipation. This resulted in taxable capital gains that will be reported as capital gain distributions in December.  

That means that, even with a mutual fund or an SMA down 15-25% in value in 2022, those early-year dispositions will have led to internal gains that is significantly higher than in previous years and requires thoughtful planning. 

Typically, mutual funds announce estimates of their distribution in late October or early November, and pay-outs come by mid-December. This creates a window for action. After receiving a mutual fund’s estimate, investors have until the nominated “date of record” to make ownership changes. The “date of record” for funds this year will begin end of November and/or early December. So, you can avoid exposure to the capital gain distribution and taxes by selling before then. Additionally, you want to consider deferring investing in additional mutual funds until the beginning of next year.   

Given the general decline of the market this year, another option – after considering your complete tax situation – is “tax-loss harvesting”, which allows you to shelter capital gains recognized this year by offsetting them with losses, minimizing your tax burden. Neither of these options is suitable for everyone, but both are worth considering and discussing with your tax professional. That’s where we come in! 

At CJBS, we love collaborating with your Financial Advisors for a holistic approach. Moreover, if you’re interested in an unbiased or independent review, we have established relationships with the Lockwood Wealth Management team, with whom we’d be happy to connect you with. They can help evaluate your investment portfolio and determine whether it’s worth making ownership changes before you are hit with a large tax bill on your capital gain distributions. Together, we can also help you offset any profits with losses through tax-loss harvesting, eliminating unpleasant surprises come tax time.   

Whatever your current financial situation, now is the time to take a moment for year-end tax planning while you still have options. Reach out to your CJBS team member directly to discuss how we can help.  

Stay Safe & Healthy,     

The CJBS Team