by Rick Jensen, Sportfishing Financial Group

As we approach the end of tax season, are you happy with the taxes you are paying on your investment accounts? Mutual fund investors may be surprised to face what many call a “double whammy” — paying capital gains taxes on investments in mutual funds that incurred losses in 2015. In most major markets last year, many mutual funds experienced losses or very small gains. Nonetheless, investors are still faced with taxes on capital gains, even though they actually only made little or no profit on the investments.

This unpleasant hit is even more exaggerated for short-term capital gains, as these are taxed at an investor’s income tax rate instead of long-term capital gains, which are typically 15% or 20%. For many investors, this is frustrating.

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Why Do I Owe if I Lost Money?

Even if an investor makes a profit on their mutual funds, taxes can turn those gains into losses. Financial publication ThinkAdvisor offers a great example of how this can happen. Let’s say an investor has a $100,000 fund portfolio that gained 0.5% before taxes and distributed 10% of its NAV in capital gains. Despite gaining $500, an investor in the top tax bracket would have to pay $2,300 in taxes, resulting in a $1,800 loss. Too often, these taxes catch investors by surprise because they weren’t aware of the small print and hidden expense ratio that comes with mutual funds.

What Can I Do to Reduce Taxes on My Investments?

One alternative is to choose investments that focus on mitigating tax liabilities by harvesting tax losses throughout the year. Investors should also be well aware of the difference between short and long-term capital gains, as short-term gains are taxed at higher income tax rates for many investors.

At Sportfishing Financial Group, we believe it’s essential for investors to understand thoroughly the investments they choose and how they will impact their taxes. Focusing on transparency, education, and objective advice, we strive to empower investors to feel confident in their investments and not be caught by surprise during tax season.

One way we do this is by working with top money managers at Dimensional Fund Advisors (DFA) to manage our clients’ money. You can learn more about our partnership by watching this video. By working with DFA, our goal is to diversify and strengthen our clients’ portfolios, mitigating losses and tax liabilities as well as we can.

If you have questions about your investments, or currently have mutual funds and aren’t satisfied with your gains or losses, call our office at 949-481-1807.

Meet Rick

Over a 25-year career, Rick has helped hundreds of business and personal clients meet their investment goals by developing risk-efficient portfolio management strategies. In addition to leading Sportfishing Financial, Rick serves as Managing Director of portfolio management for affiliate firm Baker Jensen Investment Advisors, LLC. In that capacity, he oversees all aspects of asset allocation and asset selection for individual and business client accounts.

The water is Rick's second home: He and his family have been fishing Southern California and Baja going on four generations. In the 1940s, his grandmother worked at the Cannery Restaurant in Newport Beach—when it was an actual Albacore cannery. In the 1950s, his father was on the crew that built two of the boats still in service at Dana Wharf Sportfishing.

To schedule a complimentary wealth consultation or to get a second opinion on your financial plan, contact Sportfishing Financial today. To learn more about Rick, visit his website and connect with him on Facebook. To ask a question or get our list of upcoming fishing trips, call 949-481-1807.