Learning From the Past
This past Thanksgiving brought up a few memories from my past, candy, and tax breaks. One of my favorite memories is of a candy recipe my grandmother used to make over the holiday. One of my least favorite memories is of a surprise tax bill.
I want to teach you how to make one and avoid the other.
I can’t remember how old I was when my grandmother first made this recipe. I’d guesstimate I was six or eight. It is old-fashioned peanut butter candy. It has two ingredients, one cup of peanut butter and two cups of powdered sugar. Try it. You’ll be surprised.
Needless to say, it’s not diet food. But Thanksgiving is a day most of us throw the diet out the window. At least for a day.
We had a great Thanksgiving at our house. I hope you did too. As the weekend ended, the holiday sentiment changed from one to another. I mean, it was like mushrooms growing overnight. Bam! December is here. Merry Christmas, let’s go shopping.
Perennially Dreaded Taxes
And with the year ending, memories of perennially dreaded taxes pop up like a weed that never goes away. So I am starting to wrap up my own tax planning and that of clients. However, I want to share some money-saving tax break tips I have run across while planning.
The first tip will help you if you have after-tax mutual funds. If you don’t have those types of investments, hang on. I have more.
I have seen a particular circumstance occur in years when the market is down. An investor with an after-tax mutual fund loses value for the year. Then in January of the following year, they were shocked to get a statement saying they had sizeable capital gains! So, you can understand the frustration. They lost value and now owe more taxes.
That happens because mutual fund managers sometimes have to sell stocks they have held for years to pay for investor redemptions. As they make those sales, the stocks have capital gains. Those gains must be passed on to mutual fund shareholders.
Fixing the Problem
So how do you avoid the taxable gain? First, find the mutual fund’s dividend declaration date. Then, call your mutual fund company and ask them if they have an estimated capital gain. Many fund companies will tell you if they have done an estimate. (Or ask your advisor to do it for you) If you think the gain is more than you want to tolerate, sell the investment BEFORE the declaration date. If you take the loss, it will give you a tax break and avoid the taxable gain. At that point, you have three choices; stay in cash, reinvest in a different investment, or reinvest in the same investment after 31 days. The 31-day wait avoids a problem called a wash sale, where the loss is voided. I hope I haven’t depressed you too much by talking about taxes. But just keep thinking about that peanut butter candy.
21 Tax Breaks
One last thing I made for you is a checklist of helpful blog articles (21 Tax Breaks) from the TurboTax Blog. It includes 21 articles I found helpful, including everything from adoption credits to information on the taxation of US citizens living abroad. It’s a one-page checklist. So please don’t take me wrong; this is far from a complete list. Frankly, there is no complete list of tax breaks. With over 7,000 pages, the Tax Code is just too big.
And as always, please remember that this information is for educational purposes only. This information is not investment advice or tax advice. But I’d definitely recommend the peanut butter candy.
Have a great week,