Holding mutual funds, stocks, or ETFs in taxable accounts? You might face a surprise tax bill. Here's how to minimize the impact on your wallet.
The article from MSN Money discusses how investors might face significant tax bills even if they did not engage in buying or selling stocks in 2023. This situation arises due to several factors including mutual fund capital gains distributions, which occur when mutual funds sell securities at a profit and distribute these gains to shareholders. Even if an investor did not sell any shares, they could still owe taxes on these distributions. Additionally, the article mentions that changes in tax laws, like the potential reduction or elimination of certain tax benefits, could increase tax liabilities. For instance, the Tax Cuts and Jobs Act of 2017 might see changes or expiration, affecting how capital gains are taxed. Furthermore, investors might also be affected by the Net Investment Income Tax (NIIT) if their income exceeds certain thresholds, adding an additional 3.8% tax on investment income. The piece advises investors to be aware of these passive income sources and consider tax strategies like tax-loss harvesting or adjusting investment choices to mitigate tax impacts.
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