EPS 36 – End-of-Year Distribution Planning Don’t let year-end taxes catch you off guard

Jerry talks about EOY distributions from your investment company, what you should start thinking about regarding payouts for dividends and capital gains, along with the current tax rates. 

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Episode Transcript

UNKNOWN (00:01):
Thank you.

SPEAKER_00 (00:53):
Hello and welcome to the Pink Money Podcast.
I'm your host, Jerry Williams,and we talk about all things
related to money from a gayperspective.
And, you know, we're fastreaching the end of the year,
and what that means is you'regoing to start thinking about
your taxes and the distributionsyou're going to receive from
your mutual fund companies oryour brokerage firm.
And what that's going to tellyou is what you're going to have

(01:17):
to start planning for, becausemutual funds just do their
annual distributions typicallyonce a year towards the end of
the year.
Sometimes they do it mid-year,but it's more uncommon and more
common to see a once-a-yeardistribution.
So they will run their estimatesand give you an idea, sometimes
starting in October, usuallyNovember, by early December for

(01:38):
sure, because, again, you needto start planning.
And what you want to know iswhat is the amount of the
distribution in terms of howmuch are you going to receive
for the dividends, long-termcapital gains, short-term, et
cetera.
And so you can, again, planaccordingly, meaning if it's
going to be a hefty tax bite toyou, then maybe you have some

(01:58):
losses that you can offset tolower that tax bite so then you
can do some tax harvesting onyour accounts and decide you
know what do i need to sell getrid of you know where the dogs
in my account etc and just youknow work with your tax advisor
financial advisor or you know ifyou're doing it all on your own
fine again just make sure thatthis is the strategy you're

(02:21):
going to use and then you haveto use your specific um cost
basis method, meaning when youreport this to the IRS, because
IRS is going to get a copy ofyour 1099 div and your 1099 B
from the investment company.
And then they're going to expectyou to report this on your tax
return.

(02:41):
And you have to do it in youknow, a specific way.
And once you use a specific wayof identifying these shares,
then you have to basically stickwith it on that particular
account.
So you can use something likeaverage costs, which is probably
the the most common, and usuallyyou're...
investment company is going togive you that basis and just do

(03:03):
the calculation for you, whichyou can use, right?
But it may be, hopefully it'sright.
I'm pretty sure it usually is.
But, you know, or you can do iton your own.
You can use a different method.
You can use like last in, lastout, first in, first out, or
specific identification,meaning, you know, these are the
exact lots that I'm selling orexact shares that I sold that I
bought, let's say, at the firstof the year versus these that I

(03:24):
bought mid-year versus, youknow, the ones I most recently
bought.
But, you know, again, that's upto you.
So you can run this in any whichway you want, but, again, the
IRS is going to expect you tostick with it.
You can't just jump from averagecost one year and then go to
specific identification the nextyear because it's more
beneficial and on and on and on.
So, again, you have to stickwith it and use that for that

(03:46):
particular account until, youknow, all the shares are
distributed or the account'sclosed or whatever it is.
So...
when you are looking at your endof the year taxes, and you want
to make sure that, again, theseestimates are, they're usually
really close, okay?
I mean, there may be a few centsoff here and there, you know,

(04:06):
but they're not going to bewildly different.
So they're going to be prettymuch spot on because they know
what they've done throughout theyear.
These mutual fund companies havebeen buying and selling all
throughout the year.
And, you know, all thesedistributions get paid to you,
you know, the shareholders.
So I believe it's like 97% getspaid out to you.
So everybody receives their fairshare, and then you just pay

(04:28):
taxes accordingly.
But it is what it is.
It's just part of the cost ofdoing business.
But you just want to determinewhether they're short-term,
long-term, or they're dividends,et cetera, because they're all
going to be taxed basicallydifferently.
So if they're long-term capitalgains, so if your taxable income

(04:48):
is anywhere from$0 to$47,025,and this is for 2024 Or if
you're a married couple filingjointly up to$94.50, then you're
going to have a 0% tax rate,which is nice, right?
But there's a 15% tax rate ifyour income is between$47,026
and$518,900 if you're single.

(05:12):
Or if you're married filingjointly, the...
it goes from$94,051 to$552,850,and that's at the 15% tax rate.
If you're over$518,900 for asingle person or you're married
finally jointly and your incomeis$552,850, then you're going to

(05:34):
be taxed at the 20% tax rate.
So dividends are taxed just alittle bit differently, but
essentially the same thing.
So it's the same thing, 0, 15,or 20.
And that's for qualifieddividends.
If they're non-qualified, thenthe rates range anywhere from
10% to 37%, depending on yourincome.

(05:56):
If you're a high-income earner,then also net investment income
has an additional tax of 3.8%.
And that's if your modifiedadjusted gross income exceeds
$200,000 for a single person or$250,000 if you're married
filing jointly.
So whether they are qualified,non-qualified, and you may not
know, but your investmentcompany is going to break that

(06:17):
out for you and they can tellyou that.
So this is just the time of theyear to start planning ahead,
thinking ahead, and making thoseadjustments to your portfolio
that are going to be taxadvantageous to you.
So it's something to explore,something to prepare for, and
something that you should expectif you're an investor.

(06:37):
That's just how it goes.
So I'm going to leave this justshort and sweet and leave it at
that.
And I will talk to you nexttime.