As year-end approaches, following a tumultuous season for the financial markets, we are thinking about you. Some of you may have questions about the dividend and capital gains distributions you may receive from mutual funds. As mutual funds are required by law to pay out any net income or realized capital gains to investors, now is the time to consider strategies to reduce the impact on your tax bill.
Income can come from stock dividends or bond interest, and most mutual funds pay regular dividends to distribute this income. When a stock or bond is sold at a profit within the fund, the result is a realized capital gain. Even when markets are down, you may still experience a gain from the sale of a security within the fund if the gain had appreciated over many years. If a fund has net realized gains for the year, those gains are paid out as capital gains distributions typically in November or December. There are several considerations to think through when (or before) you receive those distributions.
One consideration may be donating the mutual fund shares to charity before the distribution is made. The federal tax code allows a donor to give long-term appreciated securities that have been held for at least one year – including mutual fund shares – directly to charity without paying capital gains tax on the appreciated value. A charitable deduction can be an advantageous tax strategy for those who wish to include charitable giving in their larger financial plan. The Community Foundation is available to help you navigate the administrative complexities of making that donation. As a public charity, any fund at the Community Foundation is eligible to receive such gifts, including Donor Advised, Field of Interest or Scholarship Funds. We have partnered with many donors wishing to positively impact the lives of others in their community while also reducing their taxable income.
We always encourage donors to first seek the advice of their legal, financial, or tax advisors when considering a gift of non-cash assets. While our team does not offer tax advice, we stay knowledgeable on charitable giving strategies. Please contact Colleen Hill, Vice President of Development & Donor Services, at firstname.lastname@example.org or by calling 616–994–8853 if we can help you serve your clients.