Tis the Season for a Double Whammy

Tis the Season for a Double Whammy

As most investors find it gut wrenching in facing the significant losses they have

incurred, could you be an investor that receives a "double whammy" this year? Imagine if

you own mutual funds in a taxable account down significantly this year, only to find out

next year that you have unexpected tax bill! How can that be? Here's how many mutual

fund investors could be taxed on a mutual funds that have performed horrible this year.

Given the historic downturn in the financial markets and extreme volatility, this year

could be one of the worst years in highlighting the inequity of the tax code for mutual

fund investors. Mutual fund companies are required to pay out year-end distributions to

their shareholders when they receive any profits on the investments they sold throughout

the year. Given the extreme market volatility and panic by many investors demanding

their money, many mutual funds sold investments that they might have owned for a long

time to meet the demand of redemptions. Although these realized gains are probably not

as large as a year ago, they are still gains that are passed proportionality to the

shareholder regardless of whether the shareholder has a positive return this year.

What can a mutual investor do? Although you can't change the tax code or the selling that

went on in a mutual fund you may be able to dampen the potential tax burden. But you

have to act quickly. December is a time most mutual funds report the year-end

distributions. Call your mutual fund company or don't let your sleeping, shell shocked

advisor forget to alert you to your potential mutual fund distributions/ tax liability before

December 31st! If in fact you are going to receive some taxable distributions from mutual

funds you own, there are many simple strategies to dampen or completely offset this tax

liability since many investors have losses this year. It would be horrific to have your

accountant next year alert you to an additional tax liability when it could have easily been




Securities and investment advisory services offered through LPL Financial Member


By Richard Dragotta, CRPC

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