As the calendar year winds down, one item that often gets overlooked, even among high-net-worth investors, is capital gains distributions. These year-end distributions can significantly impact taxable income, especially for investors holding mutual funds or diversified portfolios with realized gains.
According to Jeffrey Fratarcangeli, founder and CEO of Fratarcangeli Wealth Management, understanding these dynamics, and acting before December 31, is essential.
“We review every client’s realized and unrealized gains, losses, interest and dividends before year-end,” Fratarcangeli says. “We send that report to both the client and their CPA so the tax professional can determine whether losses should be harvested or gains realized before the deadline. After December 31, it’s too late.”
Here are key points from Fratarcangeli that every investor should understand to stay ahead as the year comes to a close.
Communication Between Advisors and CPAs Is Critical
Fratarcangeli emphasizes that investors should not view their portfolio in isolation. The year-end period is about coordination between an individual’s financial advisor and their CPA.
“Every client has other components of their financial picture that we may not see, like income from a business, real estate transactions or charitable donations,” he explains. “By proactively engaging your tax professional before year-end, you can make sure all those moving parts are aligned.”
That collaboration often extends right up to the final business day of the year.
“Fratarcangeli Wealth Management works through December 31 for that exact reason,” he adds. “You want to make any necessary moves while the window is still open.”
Mutual Fund Holders Are Often Caught Off Guard
One of the most common sources of confusion, Fratarcangeli says, is how capital gains distributions work within mutual funds.
“Mutual funds make their own trades throughout the year that investors cannot see,” he explains. “Then in November or December, the fund company announces the realized gains and sends out distributions to shareholders.”
Those distributions can create unexpected taxable events, even if the investor never sold a share.
“You may have held a fund for just a few months and still be taxed on gains realized by the fund earlier in the year,” Fratarcangeli says. “It’s one reason we prefer portfolios that hold individual securities, because you can see and manage those gains in real time.”
Capital Losses Can Still Work for You
Investors who have experienced losses earlier in the year can still use them strategically.
“Capital losses can offset capital gains in the current year,” Fratarcangeli notes. “And if you still have more losses than gains, you could carry those forward into future years.”
There is also a small annual deduction benefit.
“If you have no gains to offset, you can still write off up to $3,000 of losses against ordinary income,” he explains. “It is not much, but over time it adds up.”
The key is not to wait until January to review.
“Tax-loss harvesting only helps if it happens before the year closes,” Fratarcangeli says.
Timing and Planning Matter
Fratarcangeli cautions investors not to assume that all distributions or losses can be managed after the fact.
“Timing matters,” he says. “Your advisor and your CPA need time to evaluate what is in your portfolio and what distributions are coming before they hit.”
He also points to charitable giving as one additional lever that can affect overall tax positioning near year-end.
“If you are planning to make a donation, you can coordinate that with your CPA so it aligns with any gains realized,” he says. “It is about making sure every action you take supports the broader financial picture.”
Staying Proactive, Not Reactive
For Fratarcangeli, year-end wealth management is ultimately about discipline.
“You cannot control how the market performs, but you can control how prepared you are,” he says. “That means knowing what gains and losses you have, communicating with your CPA and acting before the clock runs out.”
Fratarcangeli Wealth Management’s process is built around that proactive approach.
“We are constantly in touch with clients and their tax professionals to make sure no one is caught off guard,” he adds. “You do not want surprises in January.”
As investors approach December 31, the message is simple: awareness and preparation matter more than prediction.
“The tax code is what it is,” Fratarcangeli says. “Your best move is to understand where you stand and act on it before the year is over. After that, the opportunity is gone.”
For more insight from Jeffrey, visit the Fratarcangeli Wealth Management YouTube Channel.
