I would love to cash out a well preformed (past) mutual fund and take a hugh bite out of my credit card,but how can i do this with being attacked by the IRS bug??
badbat writes:I would love to cash out a well preformed (past) mutual fund and take a hugh bite out of my credit card, but how can i do this with being attacked by the IRS bug??I reply:You can't, but I'll bet if you run the numbers it's still worth it by a wide margin. After all, you'll pay those taxes sooner or later. By the way, don't forget to include reinvested distributions in your basis; they will help reduce the tax bite. Congratulations on your Foolish planning and action! --Bob
In brief, you can't. When you sell at a profit, you generate taxable income. There are a number of ways to reduce your tax liability:1. Delay the sale until you have long-term capital gains.2. Specify which shares to sell, so your basis is as high as possible. (This postpones tax on the other shares, with lower basis.)3. Be sure you include reinvested dividends in your basis. Don't pay taxes twice on the dividends!4. If you itemize, increase your charitable giving in the year you have capital gains.5. Give some of the shares directly to a charity. You avoid taxes on the gain, and get a deduction for the full value. This could free up dollars to pay down your credit card, if you've been giving to charity already.Congratulations on your gains. Michael
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