How to let others influence your investment income this year
Suppose you own some equity-based mutual funds.
As the stock market has suffered some reduced prices of stocks in recent months, you felt that the price drop was temporary but that the values were still there, so stayed fully invested.
Some of the other mutual fund holders, worried, have been chewing finger nails for a while, till they got them chewed down, then started trying to reach their toenails ... unsuccessfully.
Not wanting to bloody their fingers by continued chewing ...
... they instructed the managers to sign them out, at least partially, but some pulled out totally.
In the early days of such requests, the mutual fund managers had paid some out with cash on hand, but then had to sell some of their holdings in order to pay out the folks who were leaving, scared.
Which resulted in some capital gains. The payouts were made to the leavers relative to the value of the assets at the time of their withdrawal - so they get the benefit of the increased value of the assets.
Did some of those capital gains show up on their report for income tax purposes? No - they won't be accounted for till later in the year. Those guys will have been long gone by then.
But ... those capital gains will show up as credited to your account, when the year's accounts are made up.
Which you will have to show on this year's income tax return when you prepare it, next spring.
Did you make any change in your account?
Do you have to declare income (some of which was carried away, with no tax liability declared, by earlier leavers) none the less?
As the market falls farther, more stocks will be sold at closer to purchase price in order to redeem for more investors, so next to no effect on your year-end report of income.
If the market falls some more ... stocks will be sold below the purchase price ... so how do you like other investors forcing the sale of valuable assets at an unwise time?
However ... the losses will tend to cancel out the profits registered before the market had gone down so far. Meaning that you'll have less capital gain that you'll be required to report, next spring. But - how do you like others forcing the sale of some of your (and their) assets at fire-sale prices?
Too bad more mutual funds haven't as part of their guidelines the opportunity to borrow to pay out their holders when markets are undervalued, but few have given themselves that option.
Probably with some wisdom, for that option would scare the pants/panties off of a number of potential investors, who'd fear that it would be misused.
Remember those stocks that I bought over 40 years ago for $4.20 or so?
No sales in the interim ... so no necessity to report part of the capital gain to the income tax people.
That stock was "worth" (well, could have been sold for) $106. a year ago now. Involved with those skullduggerous U.S. sub-prime mortgages, plus in a company insuring them, their value decreased to $59.00 or so, a few months ago, are about $72.00 now.
Am I selling ... to crystallize some of those capital gains (and make them taxable currently)?
I'd seen my investment double 4.5 times, earlier ... now it's doubled about 4.1 times. There'll be further recovery - I'm not about to sell now.
No reporting to the income tax people regarding that stock's capital situation, at this point.
I prefer that situation.
Good wishes for increasingly skillful management of your assets (income, as well).
P.S. Plus .. in many cases, you're paying the managers of the mutual funds (few of whose growth records outpace the market averages) a management fee probably rather comparable to the rate of income tax that you're paying on that income.
And the managers get paid at regular rates ... whether you get any growth/income or not!