Year-End Capital Gains Distributions: What to Review Before December 31
Year-End Capital Gains Distributions: What to Review Before December 31
As the calendar year draws to a close, many investors focus on performance and forget a key detail that can affect their tax bills: capital gains distributions. These year-end distributions, particularly from mutual funds, can meaningfully increase taxable income even if an investor has not sold a single position.
At Fratarcangeli Wealth Management, we view year-end as a critical window. Our goal is simple: understand the gains and losses across our clients’ portfolios, coordinate with tax professionals and make any necessary moves before December 31, when the window of opportunity closes.
Start with a Clear Year-End Picture
Ahead of year-end, Fratarcangeli Wealth Management reviews each client’s realized and unrealized gains and losses, as well as interest and dividends. That information is shared with both the client and their CPA so the tax professional can decide whether it makes sense to harvest losses, realize gains or hold steady.
The key point: these decisions must be made before December 31. Once the year closes, investors lose the ability to adjust 2025 capital gains and losses.
Make Sure Your Advisor and CPA Are Aligned
Year-end planning does not happen in a vacuum. Most investors have other elements in their financial lives that sit outside the investment portfolio, like business income, real estate transactions and charitable donations. All of these can influence the most effective tax strategy.
For that reason, Fratarcangeli Wealth Management emphasizes coordination between our wealth management teams and clients’ CPAs well before year-end. That coordination often continues right up to the final business day of the year, to ensure any necessary trades or other actions are completed while the window is still open.
Understand How Mutual Fund Distributions Work
One of the most common sources of surprise at year-end is how capital gains distributions work inside mutual funds.
Throughout the year, mutual funds buy and sell securities. Investors do not see those day-to-day trades. In November or December, the fund company announces the realized gains from those trades and distributes capital gains to shareholders.
Those distributions can create unexpected taxable events, even when an investor has not sold any shares of the fund. In some cases, someone who has held a fund for only a few months can still owe tax on gains that were realized earlier in the year.
Because of this, Fratarcangeli Wealth Management often builds our clients’ portfolios around individual securities, where gains and losses can be seen and managed in real time. Regardless of approach, it is important for investors to know which funds they own and what distributions may be coming before year-end.
Put Capital Losses to Work
Losses are never pleasant, but they can still be used strategically.
Capital losses can offset capital gains in the current year. If losses exceed gains, the remaining losses can be carried forward to offset gains in future years. In addition, if there are no gains to offset in a given year, up to $3,000 of capital losses can be deducted from ordinary income. While that amount may seem small, it can add up over time.
The common thread is timing. Tax-loss harvesting and other loss strategies only help if they are implemented before the year closes. Waiting until January removes that option for the prior year.
Factor in Charitable Giving and Other Year-End Moves
Year-end planning around capital gains does not happen in isolation. Charitable giving, in particular, can influence the overall tax picture.
If an investor is already planning to make a donation, coordinating the timing and structure of that gift with their CPA can help align it with any realized gains or distributions for the year. Our objective is to ensure that each action taken toward year-end supports an investor’s broader financial picture, rather than working against it.
Stay Proactive, Not Reactive
Investors cannot control how the markets behave, but they can control how prepared they are for the tax impact of those market moves.
For our Fratarcangeli Wealth Management team and clients, that means:
Knowing what gains, losses, interest and dividends exist before year-end
Maintaining open communication with clients’ CPAs
Acting before December 31, rather than reacting to surprises in January
As the year winds down, awareness and preparation matter more than prediction. Tax rules are already in place for 2026. The difference between success and setbacks comes from understanding where you stand, coordinating with your advisory and tax teams, and taking any needed steps before 2025 is over. Once 2026 begins, the opportunity to influence the prior year’s capital gains picture is gone.
Jeffrey Fratarcangeli and Fratarcangeli Wealth Management do not provide tax or legal advice.
Securities offered through Thurston Springer Financial, a registered Broker-Dealer (Member FINRA & SIPC). Investment advisory services offered through Thurston Springer Advisors, a SEC-Registered Investment Advisor. Insurance products offered through Thurston Springer Financial, an Indiana Insurance Agency.
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This is not intended to be a client-specific suitability or best interest analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities.