Déjà vu All Over Again


‘Tis the season of giving, and a select few may have received gifts in years past they’d rather not have received for one reason or another.  Investors should expect that to be the case this year from mutual fund managers, as was the case last year.

Mutual funds are composed of a basket of securities.  Within the fund, as those securities within the fund rise and fall in value, any sales that are made cause realized gains and losses.  Realized losses are netted against realized gains, and any net gains are passed through to shareholders.  In general, shareholders receive notice of this on their 1099-DIV’s and are required to report the realized gains on their respective tax returns.

While there have been bumps along the way, this year is more than likely to extend a tremendous six year run in the stock market off the low in March of 2009 (which we would all like to forget).  Because of the exceptional losses experienced in 2008 and early 2009, and sales made within mutual funds during that time, many mutual funds had excess realized losses, which have been used to offset realized gains until about last year.  This had largely allowed mutual fund shareholders to experience growth without having to be concerned with capital gains distributions.

Last year, for the first time since the so called Great Recession, many mutual fund companies were back to reporting capital gain distributions for 2013.  The same holds true for 2014, and investors should be prepared.  There are some equity funds that still are estimating little or no capital gains distributions, and many are in the 3-4% of Net Asset Value range.  However, there are also several equity funds that are estimating capital gain distributions of 8-10%, and we have seen distribution estimates for a select few as high as 20% or more of fund value!

If these funds are owned in a retirement account, there is little cause for concern, as the distributions are sheltered from taxation.  If they are owned in a taxable investment account, investors need to be aware that the years of sailing along without these taxable distributions are behind us.

There remains time for year-end tax planning, and a person may be able to do some “tax harvesting” by selling securities with unrealized losses.  However, given the positive movement in the market over the last several years, many may find themselves in the fortunate position of not having losses they can use to offset these anticipated gains.

The silver lining to this cloud is that, while there may be larger capital gains taxes to pay for 2013 and 2014, it is largely because assets have appreciated.  We would much rather be in the positive position of paying taxes on gains, than find ourselves not paying taxes due to losses in accounts.

Barry Nelson


A little more about Capital Financial Planners...

Established in 1984, Capital Financial Planners, LLC is an independent, fee-based investment management and financial planning firm located in Salem, Oregon. We provide wealth management and advisory services to clients in the Pacific Northwest and beyond. Our services include retirement planning, investment management, advisory services for trustees, hourly financial planning and more. We take a holistic and collaborative approach, working not only as our clients’ financial advisors, but as their financial partners.


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