Taxes

Are You Giving Uncle Sam Too Much Money?

Did you know your Mutual Funds can be taking way more our your hard earned money than you think? In fact, more than 43% of American households own these inefficient investments. So, practically all investing Americans could be paying more than their fair share of taxes. In this article, we show you how to keep more of that money in your pocket.

February 10, 2022

Are You Giving Uncle Sam Too Much Money?

If I told you there are two  simple strategies that you can implement in your investment plan with little effort that could save you THOUSANDS on taxes, would you be interested? Of course, you would be! However, these simple strategies rarely get used by investors.

What Are These Strategies?

Using tax efficient investments and tax loss harvesting to save thousands on taxes.

What Are Tax Efficient Investments?

Americans currently have over 16 trillion dollars invested in investments that actually force them to pay more than their fair share of taxes! Can you believe that?

In fact, more than 43% of American households own these inefficient investments. That’s even more outstanding when you consider about half of Americans have zero dollars invested in the markets. So, practically all investing Americans could be paying more than their fair share of taxes.

What are these investments that are screwing you out of your hard-earned money? Mutual Funds.

Mutual Funds buy and sell stocks within their diversified “bucket.” The mutual fund may buy and sell for several different reasons:

  • Change in allocation often called turnover (getting rid of stock or buying new stock)
  • Rebalancing their portfolio
  • Customers purchasing into or trading out of the mutual fund

Every time the Mutual Fund manager sells stock within the fund, it can create a taxable event. Those taxes get passed along to you in the form of a “capital gains dividend.” These passed along gains give you an extra tax bill. The CFA Institute did a study that the tax drag for the average mutual fund is 1-1.2%!! On a $100,000 portfolio, you are paying an extra $1,000.00 per year in taxes…

You can see how this really adds up.

Enter a Better Wheel

Investments such as Exchange Traded Funds (ETFs) and Tax-Managed Index Mutual Funds Provide a BETTER way to invest and keep money in your pocket instead of Uncle Sam’s.

Index funds track a specific market or sector (aka track an index). Therefore, there is no buying/selling to try and beat a market, so the turnover of stocks in the fund is virtually zero. This lack of turnover immediately saves you on Taxes.

Also, the structure of ETFs protects you from Capital Gains distributions. When you buy or sell an ETF, you are buying and selling it from (to) someone else in the market instead of the company itself. The whole “basket of stocks” are being passed from one person to another. Therefore, the ETF doesn’t need to buy or sell stocks whenever an investor needs to buy or sell.

The result = NO CAPITAL GAINS DISTRIBUTIONS passed to you.

You only owe taxes on ETFs when you ACTUALLY MAKE MONEY.

To tap into this powerful tax savings, all you need do is replace your tax inefficient mutual funds with tax-efficient mutual funds. If you must own mutual funds, please keep them in a tax-deferred account or tax-free accounts such as an IRA, Roth IRA, or 401(k).

Want To Save Even More Money On Taxes?

Combine your tax-efficient investments with a tax loss harvesting strategy. What is tax-loss harvesting, you ask?

Say, you are investing in an S&P 500 ETF such as “SPY.” You put $100,000 into this investment.

Shortly after you put your money into SPY, the market takes a downturn. You can sell your SPY to harvest your $10,000.00 loss, rebuy into market exposure, and later use those losses against your taxable income, ALL without losing your market exposure.

This strategy leads to an incremental saving on your taxes! More savings on tax = more money back in your pocket!

All sounds pretty awesome, right?!

Well, here at Vincere Wealth Management we do all of this for you! We invest in Low Cost and Tax efficient Exchange Traded Funds (ETF’s) and also implement tax loss harvesting strategies in your taxable accounts.

Do you or someone you know, want to learn more about these strategies or other easy ways to save thousands on taxes?

Chat here to chat with one of advisors to put more money back in your pocket.

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