Please ensure Javascript is enabled for purposes of website accessibility

Big Gains and Minimal Taxes

By Selena Maranjian – Updated Apr 5, 2017 at 11:33PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Many fund investors will enjoy a silver lining come tax time.

There’s been a lot of good news in the market lately --- so much so that you may be waiting for the catch. But this year, at least, the IRS won't be waiting at the doors of shareholders in top-performing mutual funds.

These have been heady months for many investors, and not just those in dynamic, fast-growing small companies. Even big companies like Dow Chemical (NYSE:DOW) have posted impressive returns recently. So you can just imagine the kind of pleasing performance that many mutual funds will likely deliver for 2009. Check out these results, for example:

Fund

2008 Return

2009 YTD Return

Holdings Include ...

Dodge & Cox Stock (DODGX)

(43%)

26%

General Electric (NYSE:GE), Schlumberger (NYSE:SLB)

Vanguard Windsor II (VWNFX)

(37%)

21%

IBM (NYSE:IBM), JP Morgan Chase (NYSE:JPM)

American Funds Growth Fund of America (AGTHX)

(39%)

27%

Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG)

Source: Morningstar.

But wait, there's more! When funds generate the sort of big losses they did in 2008, they tend to rack up capital losses that are carried forward from one tax year to the next. Whereas a 20% return would normally mean a sizable tax hit for shareholders, this year many funds will distribute little if anything for capital gains, because of tax losses from 2008.

The stock situation
It might be the same for you and your stock portfolio, too -- provided you sold your holdings at a loss just because they (or the market) plunged. Doing so excludes you from subsequent recoveries.

If you sold, though, and had major losses, you can only offset corresponding gains with them, in addition to just $3,000 of non-capital-gain income. That might leave you carrying forward thousands in losses. If so, you can take some gains this year, and offset them with last year's losses. Just be sure not to buy back whatever you sell until a month and a day later, so that you don't end up with a "wash sale."

So enjoy this year's hiatus from big fund taxes. And remember to be proactive with your stocks and taxes -- have a strategy.

Gain some tax insights by looking at The Motley Fool's Rule Your Retirement newsletter, which you can try for free. It offers both stock and fund recommendations, too.

Longtime Fool contributor Selena Maranjian owns shares of Google, Microsoft, GE, and Dodge & Cox Stock. Google is a Motley Fool Rule Breakers selection. Microsoft is a Motley Fool Inside Value recommendation. Try any of our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$237.92 (-1.27%) $-3.06
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$98.74 (-1.40%) $-1.40
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
$109.14 (-1.86%) $-2.07
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$122.71 (-2.08%) $-2.60
General Electric Company Stock Quote
General Electric Company
GE
$64.55 (-1.24%) $0.81
Schlumberger Limited Stock Quote
Schlumberger Limited
SLB
$35.00 (-8.45%) $-3.23
DuPont de Nemours, Inc. Stock Quote
DuPont de Nemours, Inc.
DOW

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.