catalpa wrote:
- quote -

I'm pretty sure what B was thinking of was selling the fund immediately
before the distribution, resulting in a capital gain (either short or
long-term). Then, using capital losses on Schedule D to "cancel out"
that capital gain. It's something you could consider anytime you sell a
mutual fund to avoid a pending income distribution, when the sale
results in a gain.

What you may be getting at is that you wouldn't be able to routinely
turn it into a long-term capital gain, unless the fund shifted its
distribution date a bit later each year. If you buy a fund the date
after its annual distribution, and the distribution date is fixed each
year (more or less), then selling the day before the next year's
distribution would result in a short-term capital gain/loss.

-Tad

catalpa wrote:

- quote -

But it was an answer to your question as to why someone might want to
take cap gains rather than dividends.




Brian

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"Default User" <defaultuserbr[at]yahoo.com> wrote in message
news:6upf7iFgo1frU1[at]mid.individual.net...
- quote -

That is true, but not a stated concern of the OP. The OP said "I wish there
junk bond funds that paid distributions annually or quarterly, which would
make it easier to avoid taxes on income distributions."

beliavsky[at]aol.com wrote:
- quote -

If you ran a mutual fund focused on relatively illiquid investments like
high-yield bonds, would you want to set up this kind of "opportunity"
for investors to avoid the income distributions? It sounds like
something you would want to specifically avoid, through more-frequent
distributions.

Think of the cash inflow/outflow problems it could create if people
capitalized on it. You'd have to liquidate a bunch of the portfolio to
meet redemptions just before the distribution (which itself requires
cash), then deal with the new money that came after the annual
distribution was paid - buying back the securities you just sold to meet
the redemptions! The round-trip double whammy of transaction costs could
be a real hit to NAV, given how hard it can be to buy or sell this type
of bond. The same is probably true of any of the high-yield securities.
So it's a catch-22, for funds where it would be an opportunity to
exploit, the managers have a reason to distribute more frequently so
this isn't worth doing.

But more generally, good tax management can involve selling a mutual
fund before a big distribution, for the same reason you're getting at -
that's pretty standard. I just wouldn't expect it to be a regular
strategy to use for a fund.

-Tad

catalpa wrote:


- quote -

A lot of people have capital losses these days and can use them to
offset capital gains.




Brian

--
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won't shut up.
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<beliavsky[at]aol.com> wrote in message
news:8fb94dc9-d971-4c62-a178-0ba7cebfefc2[at]g38g2000yqd.googlegroups.com...
- quote -

But the same 40% tax rate applys to short term capital gains as to the
dividend (interest) payments, so what is the point?

It is never a good idea to let the tax tail wag the investment dog. If you
don't want to pay the taxes on junk bond funds then buy high yield muni bond
funds.

beliavsky[at]aol.com writes:

[junk bond funds]

- quote -

There are accounting and investment issues which make it better
for them to distribute the income more frequently. For one,
they have to distribute it regardless, and if it accumulates,
what do they do with it in the meantime - leave it in low-interest
cash? For two, it also accumulates with every trade they make,
as bonds trade with their accrued interest.

- quote -

I'm still not sure why you want to turn ordinary income,
taxed at your highest income tax level, into short-term
capital gains - also taxed at that same, highest income
tax rate. Again, the main advantage I can see is for
burning off some carried-forward cap-losses.

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"Alvin" <acorn[at]muncher.com> writes:

- quote -

It shouldn't ever have any, if it does what it's supposed to do.

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On Feb 2, 2:30*pm, BreadWithS...[at]fractious.net wrote:
- quote -

Maybe. But do you see why it would be worth the effort if these funds
distributed income only annually? Is there anything stopping them from
doing that? I think the problem is that lots of bond fund owners
expect "income" in the form of a monthly distribution, even though
they could achieve the same thing themselves by selling shares of the
fund each month.

beliavsky[at]aol.com writes:

- quote -

The word you're looking for here is that dividends on junk
bonds are not "qualified dividends" and are taxed, therefore,
as ordinary income. It's qualified dividends which get the
better (cap-gains) rates.

For more info, see IRS Pub 550:
<http://www.irs.gov/pub/irs-pdf/p550.pdf
Whether it makes sense to turn ordinary income into short-term
cap-gains, I suppose it's possible, particularly if you have
short-term cap losses being carried forward and which you want
to burn off. But it's probably generally not worth the effort.


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"JoeTaxpayer" <JoeTaxpayer[at]comcast.net> wrote in message
news:gm77gi$4ip$1[at]news.motzarella.org...
- quote -

For the record, JNK had no qualified dividends in 2008.
https://www.spdrs.com/library-conten...12.31.2008.pdf
See page 43.

On Feb 2, 11:39*am, JoeTaxpayer <JoeTaxpa...[at]comcast.net> wrote:
- quote -

Yes.

- quote -

The distributions paid by junk bond funds are from interest payments
and are taxed as ordinary income. The 40% represents a typical federal
+state marginal income tax rate.

beliavsky[at]aol.com wrote:
- quote -

Your goal is to turn potential dividend distributions into cap gains/loses?
Where does the 40% tax rate come into play? Dividends would have
favorable treatment, but short term cap gains, not. I'm missing the
point here, sorry. Your risk in junk bonds seem far higher than any tax
consequences.

Joe

There are brokerage firms offering free trades (for example Zecco with
a $25 K balance). At such firms the cost of trading is the bid-ask
spread (and the value of one's time). I think for some bond ETFs that
trade with fairly tight spreads, the cost of trading is less than 1%
annually, so that the tax savings could exceed the trading cost for
investors who have capital losses carried over from previous years
that can be used to offset the capital gains. Below is an example
using JNK, the junk bond iShare (ETF).

I wish there junk bond funds that paid distributions annually or
quarterly, which would make it easier to avoid taxes on income
distributions.

symbol JNK
bid 31.070
ask 31.090
mid 31.080
% spread 0.0644
#trades/year 12
% trading cost/year 0.77
% dividend yield 14.00
tax rate (state+federal) 40%
% dividend tax 5.60
ratio of tax to trading cost 7.25