Mutual Fund Transfers

Over the years, many clients have come in for their annual meeting. I often ask them if they sold any mutual funds. Quite often they say, "No." As I proceed to look through their papers, I see the statement from the stock broker indicating that there was, in fact, a sale.

I will typically pass the statement from the broker across the table, and they will tell me they never "sold" the mutual fund. They just made a telephone transfer from one mutual fund to another in the same family of funds. This happens quite often when one fund is not performing as expected, and the client is looking for a better return.

Most people tend to think of a mutual fund as a bank account. However, you are really purchasing a share in a group of assets. You own shares in the fund, and then the fund invests in various assets including stocks, bonds or money market investments. If you take the time to read your statement, you will notice that the value of the shares moves up or down on a regular basis depending on what the underlying assets are doing on any given day. When you own shares in a mutual fund, you receive an equity position (own a share) in each of the underlying securities.

For tax purposes, since you own a share in the underlying stocks, you are considered to have a sale when you move your money from one fund to another. At that point, you will have to calculate your gain or loss on the sale of your shares. If you are not aware that you had a sale, you can end up with a nasty surprise at tax time when you suddenly have a lot of unexpected gains on your tax return. If you do not report the sale of the mutual fund, you can rest assured that you will receive a friendly letter from the IRS informing you that you now owe them a fortune. The brokers ALWAYS report the sale of the funds to the IRS.

If you own any shares in mutual funds, you need to keep very careful and complete records. You need to keep the records showing the purchase and any dividends you received over the years. If you still have mutual funds today that you purchased in the 1970's, you still need to retain those records. So, if you hold the mutual fund for 30 years, you need to keep those records the entire time you own the fund (and then some!). Failure to keep the records will most likely result in paying taxes twice on the same earnings. This can get particularly complicated when mergers and acquisitions take place with the different stock brokers. It appears that many times, the records with the broker get lost if the broker changes names.

If you are contemplating a large sale of a mutual fund, we should do some tax calculations and planning before the sale to see your potential tax impact. Many times, these sales can throw you into the dreaded Alternative Minimum Tax and produce some nasty results. With a little bit of planning the bad results can be avoided or minimized.

Web Site Is Up and Running

I FINALLY got my web site launched a few weeks ago with the help of a client. The address is www.onlinefinancialcafe.com. As time goes by, it will provide a wide variety of tax, financial and business information. Since I am in the middle of tax season right now, I do not have time to make extensive corrections at this point.

If you have friends or relatives who may need financial help, please send them to my web site. I have put up some detailed reasons why someone might need an accountant. Those are just for starters!!! There will be more added to the list later.

The name of the web site and the blog were chosen to reflect my diverse range fo experience. I have many years of tax and financial experience and also work in the mortgage and real estate areas. After tax season, I will begin offering a WIDE range of financial services which will include everything from long term care insurance to retirement plans and just about anything else you can imagine. I want to make sure that my clients have the full range of financial tools at their disposal so they can live the lifestyle they choose with a little bit of planning.

Since I am right in the middle of tax season, the web site will grow very slowly. I know there is at least one typo there. If you have any suggestions, please let me know. I will be experimenting to find out what works best. It will not be an overnight process.

Please continue to use my e-mail address at sballmann@aol.com. There is a new e-mail listed on the web site, but I do not know how to easily access it at this point. If you send an e-mail, please make sure you put two n's at the end of my last name. Failure to do so may result in a nasty e-mail from one n who refuses to forward anything!!! Once I get past tax season, I will figure out the new address and start using it to eliminate the problem with the two n's on my last name.

Open for Tax Confessions!!!

I always joke that I feel like a priest listening to confessions when I meet with my clients. Everything is we discuss strictly confidential and cannot be discussed with anyone. After a long absence in posting to my tax blog, I wanted to start updating it on a regular basis and get some current information out there. If you have not yet been in to make your annual "tax confession, " please call or e-mail me to set up an appointment as soon as possible so you won't run into the last minute rush. If you have friends and relatives that you are sending over, please try and get them over here as quickly as possible also.

This is actually a picture of an old confessional in Rome. I could not determine the name of the church where it was located, but it appears that it may be somewhere near the Trevi Fountain looking at the sequence of the pictures in my camera.