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Preview: Comments on: Would You Like to Pay My Taxes?

Comments on: Would You Like to Pay My Taxes?

Personal Finance. Investing. Wealth Building.

Last Build Date: Tue, 27 Jun 2017 16:21:28 +0000


By: Pinyo

Tue, 01 Jan 2008 05:33:52 +0000

@Minimum Wage - You're surprising me more and more everyday :-) Good question. "I don't see where Bob is paying Joe's - or anyone else's - taxes." Since mutual fund is a type of co-ownership, when I buy a share of mutual fund, I am actually buying a tiny fraction of each underlying stocks. Underlying stocks that gained value benefited someone else before I bought into that ownership. Once the fund distribute capital gains, it's akin to me paying other people taxes. Why? Because if we were talking about individual stocks, the person who enjoyed the gain is the one who pay taxes -- this is not the case with mutual fund.

By: Minimum Wage

Mon, 31 Dec 2007 01:33:52 +0000

I don't own any mutual funds (no kidding!) but I'm confused. Mutual Fund M buys stock X in 2000. Joe buys M in 2003. Bob buys M in 2005. Joe sells M in 2005. Fund M sells stock X at a profit in 2007. I can see where M's gain is distributed to Bob in 2007, and Bob pays taxes on it. I don't see where Bob is paying Joe's - or anyone else's - taxes. If Joe is actually in a loss position, he will "enjoy" a LT capital loss when he sells, thereby reducing his taxes.

By: Pinyo

Sat, 29 Dec 2007 13:50:01 +0000

@FourPillars - certainly.

By: FourPillars

Fri, 28 Dec 2007 12:18:31 +0000

Pinyo - you are right - capital gains can build up over years. Another problem is a change in fund manager, a new manager might sell off a lot of old holdings thereby triggering cap gains. Pretty hard to predict management change however. Mike

By: Pinyo

Fri, 28 Dec 2007 04:13:06 +0000

@FourPillars - Good advice regarding choosing funds with low turnover. Regarding buying toward the beginning of the year, that's also a sound advice -- but you can pay other people's taxes still. I think a lot of funds are ticking time bombs. If there's a large out flux that causes the manager to sell stocks, the distribution will get worse causing even more sell offs. @Honest Dollar - No problem. I am of the same mind regarding mutual funds vs ETFs in taxable vs. tax-sheltered accounts. @Matthew - You're welcome. @Mark - No, because you'll end up paying short-term capital gains versus the cheaper long-term capital gains.

By: Mark

Fri, 28 Dec 2007 00:55:01 +0000

What about buying and selling mutual funds before capital gains? Now that I think about it, you can't really make much money that way, can you?

By: Matthew

Thu, 27 Dec 2007 18:38:01 +0000

Thank you for the post!

By: Lily

Thu, 27 Dec 2007 16:15:05 +0000

Thanks for the link! I had been planning to open a non-retirement account with Fidelity to start investing in a couple of mutual funds I liked, but now I'm more convinced than ever that the money would be better off going into my existing ETFs. Mutual fund action will stay in my tax-advantaged retirement account.

By: FourPillars

Thu, 27 Dec 2007 13:50:54 +0000

Great advice to buy ETFs to cut down on taxes. I think broad market based ETFs are the best bets. If you have to buy mutual funds then at least try to avoid funds that have a high turnover which will add to the tax bill. Finally - if you are making a large lump sum purchase - try to do it as early in the year as possible - at least that way you are paying your own taxes rather than someone else's. Mike