As the year winds down, investors start receiving notices of mutual fund and brokerage distributions—dividends, short-term gains, and long-term gains that can impact your tax bill. In this episode of Pink Money, Jerry Williams explains how these distributions work, why they happen, and how to plan ahead so you’re not caught off guard come tax season.

From cost-basis methods and tax-loss harvesting to capital gains brackets and dividend rules, Jerry breaks down what you need to know to keep more of your money. Whether you’re managing your own portfolio or working with an advisor, this episode helps you prepare smartly for year-end and beyond.

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Season 4 Investing & Retirement Taxes & IRS

In this episode of the Pink Money Podcast, host Jerry Williams breaks down what year-end mutual fund and brokerage distributions mean for your taxes. As December approaches, investors can expect dividend and capital gain distributions that must be reported on tax returns. Jerry explains how to read estimates, why tax-loss harvesting may help soften the blow, and how cost-basis methods (average cost, FIFO, LIFO, or specific identification) affect IRS reporting.

He also covers how different types of income—long-term capital gains, qualified dividends, non-qualified dividends—are taxed, and what thresholds apply for 0%, 15%, or 20% rates. High-income earners will also want to watch out for the 3.8% net investment income tax.

This quick but essential reminder encourages investors to plan ahead, consult with advisors, and prepare now to avoid surprises at tax time.

Key themes:

  • Why mutual funds distribute gains at year-end.

  • Using tax-loss harvesting to offset taxable distributions.

  • IRS cost-basis reporting rules and consistency.

  • Tax brackets for long-term gains and dividends in 2024.

  • The 3.8% net investment income tax for higher earners.

 

Transcript

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Thank you.

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Hello and welcome to the Pink Money Podcast.

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I'm your host, Jerry Williams, and we talk about all things related to money from a gay perspective.

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And, you know, we're fast reaching the end of the year, and what that means is you're going to start thinking about your taxes and the distributions you're going to receive from your mutual fund companies or your brokerage firm.

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And what that's going to tell you is what you're going to have to start planning for, because mutual funds just do their annual distributions typically once a year towards the end of the year.

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Sometimes they do it mid-year, but it's more uncommon and more common to see a once-a-year distribution.

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So they will run their estimates and give you an idea, sometimes starting in October, usually November, by early December for sure, because, again, you need to start planning.

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And what you want to know is what is the amount of the distribution in terms of how much are you going to receive for the dividends, long-term capital gains, short-term, et cetera.

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And so you can, again, plan accordingly, meaning if it's going to be a hefty tax bite to you, then maybe you have some losses that you can offset to lower that tax bite so then you can do some tax harvesting on your accounts and decide you know what do i need to sell get rid of you know where the dogs in my account etc and just you know work with your tax advisor financial advisor or you know if you're doing it all on your own fine again just make sure that this is the strategy you're going to use and then you have to use your specific um cost basis method, meaning when you report this to the IRS, because IRS is going to get a copy of your 1099 div and your 1099 B from the investment company.

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And then they're going to expect you to report this on your tax return.

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And you have to do it in you know, a specific way.

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And once you use a specific way of identifying these shares, then you have to basically stick with it on that particular account.

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So you can use something like average costs, which is probably the the most common, and usually you're...

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investment company is going to give you that basis and just do the calculation for you, which you can use, right?

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But it may be, hopefully it's right.

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I'm pretty sure it usually is.

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But, you know, or you can do it on your own.

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You can use a different method.

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You can use like last in, last out, first in, first out, or specific identification, meaning, you know, these are the exact lots that I'm selling or exact shares that I sold that I bought, let's say, at the first of the year versus these that I bought mid-year versus, you know, the ones I most recently bought.

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But, you know, again, that's up to you.

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So you can run this in any which way you want, but, again, the IRS is going to expect you to stick with it.

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You can't just jump from average cost one year and then go to specific identification the next year because it's more beneficial and on and on and on.

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So, again, you have to stick with it and use that for that particular account until, you know, all the shares are distributed or the account's closed or whatever it is.

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So...

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when you are looking at your end of the year taxes, and you want to make sure that, again, these estimates are, they're usually really close, okay?

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I mean, there may be a few cents off here and there, you know, but they're not going to be wildly different.

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So they're going to be pretty much spot on because they know what they've done throughout the year.

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These mutual fund companies have been buying and selling all throughout the year.

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And, you know, all these distributions get paid to you, you know, the shareholders.

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So I believe it's like 97% gets paid out to you.

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So everybody receives their fair share, and then you just pay taxes accordingly.

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But it is what it is.

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It's just part of the cost of doing business.

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But you just want to determine whether they're short-term, long-term, or they're dividends, et cetera, because they're all going to be taxed basically differently.

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So if they're long-term capital gains, so if your taxable income is anywhere from$0 to$47,025, and this is for 2024 Or if you're a married couple filing jointly up to$94.50, then you're going to have a 0% tax rate, which is nice, right?

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But there's a 15% tax rate if your income is between$47,026 and$518,900 if you're single.

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Or if you're married filing jointly, the...

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it goes from$94,051 to$552,850, and that's at the 15% tax rate.

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If you're over$518,900 for a single person or you're married finally jointly and your income is$552,850, then you're going to be taxed at the 20% tax rate.

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So dividends are taxed just a little bit differently, but essentially the same thing.

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So it's the same thing, 0, 15, or 20.

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And that's for qualified dividends.

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If they're non-qualified, then the rates range anywhere from 10% to 37%, depending on your income.

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If you're a high-income earner, then also net investment income has an additional tax of 3.8%.

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And that's if your modified adjusted gross income exceeds$200,000 for a single person or$250,000 if you're married filing jointly.

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So whether they are qualified, non-qualified, and you may not know, but your investment company is going to break that out for you and they can tell you that.

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So this is just the time of the year to start planning ahead, thinking ahead, and making those adjustments to your portfolio that are going to be tax advantageous to you.

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So it's something to explore, something to prepare for, and something that you should expect if you're an investor.

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That's just how it goes.

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So I'm going to leave this just short and sweet and leave it at that.

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And I will talk to you next time.