There are a couple of business issues I like to ponder this time each year. Can I avoid any mutual fund capital gains distributions, typically slated for December, and how can I make 2011 better than 2010? The second question is much more difficult, so we'll start with the first.
Most mutual funds make their annual capital gains distribution in December. In 2008, there were little if any distributions. In 2009 there were some, but many clients had capital losses to use, so the tax hit was minimal. Even for tax year 2010, there are probably a lot of capital loss carry-forwards to utilize, but what if this is not the case?
To help clients retain more of their wealth, consider discarding certain funds before their record date. That's the date by which a fund determines who is entitled to the distribution. One sure thing is to not buy a fund this late in the year if a capital gain is expected. Why? Because your client will be responsible for paying taxes on the underlying performance of the fund, even though that client didn't participate in the gains. If there are some funds you've been thinking about dumping, now may be a good time to do so.
Preparing for an Improved 2011