Download Tax essentials: How to keep more of what you earn

Tax essentials: How to
keep more of what you earn
% of ETFs paying out
capital gains distributions
What to do when every dollar counts
25%
investors to consider tax efficiency in building a portfolio.
iShares
% Avg.
20
<5
15
What does it mean to be “tax-efficient”?
Some investors are surprised to find that they have to pay taxes on their mutual fund and
10
5
In a low return environment, every dollar counts. Now more than ever, it’s important for
5
2
7
6
ETF investments even if they didn’t sell their funds during the year. See below for key facts
on capital gains and dividends.
1
20
12
20
13
20
14
20
15
20
16
0
Vanguard
% Avg.
13
25%
20
15
19
13 13 13
11
10
5
20
12
20
13
20
14
20
15
20
16
0
25%
20
15
Two types of dividends
Capital gains from your investment activity
• If you sell a security at a gain, you have
to pay taxes on the proceeds.
Ordinary dividends
• Funds can distribute two kinds of
dividends: ordinary or qualified.
• Long-term capital gains are currently
• Ordinary dividends are taxed at ordinary
taxed at 23.8%; short-term gains are taxed
at ordinary income rates (up to 43.4%).1
23
19 19 19
14
income rates (up to 43.4% depending
on your tax bracket).
Capital gains distributions from the fund
• When funds sell securities at a gain,
they have to distribute proceeds
to shareholders.
Qualified dividend income (“QDI”)
• Dividends that meet holding period and
other requirements are taxed at a lower
rate (23.8% for the highest tax bracket).
• You pay taxes on the distribution you
• Funds that have a higher percentage of
receive, regardless of whether you gained
or lost money on your investment.
State Street
% Avg.
19
Two types of capital gains
qualified dividends are therefore more
tax efficient.
The Bottom Line
The Bottom Line
Minimize capital gains distributions
Maximize the percentage of QDI
to gain tax efficiency
to gain tax efficiency
Meet tax-efficient iShares ETFs2
10
iShares has a track record of providing tax-efficient ETFs.
5
•• Over the past 5 years, less than 5% of iShares ETFs distributed capital gains. Meanwhile,
20
12
20
13
20
14
20
15
20
16
0
Source: Morningstar, as of 12/31/16.
Number of funds includes all funds that
incepted on or before 10/31 of each year,
and excludes any funds that closed on or
before 10/31 of each year. Past distributions
not indicative of future distributions.
iShares.com/tax
over 5 out of 10 mutual funds have distributed capital gains during that time
•• 220+ iShares ETFs have never paid a capital gain
•• In 2016, over 100 iShares ETFs generated 100% qualified dividend income (QDI), which is
taxed at a lower rate than ordinary dividends
The iShares tax difference
Not all investments are created equal when it comes to tax efficiency. Three characteristics set iShares ETFs apart
when it comes to helping you keep more of what you earn:
Three things set iShares ETFs apart
Why it matters
What makes iShares ETFs different
Dedicated
ETF structure
When funds buy and sell securities in cash,
they exchange cash for securities and vice
versa. Cash transactions are considered taxable
events and can cause funds to incur gains.
iShares ETFs offer dedicated ETF structures, so
they can exchange securities for securities and
minimize tax consequences.
Portfolio
management
Portfolio managers must build and manage
a fund diligently to achieve tax efficiency.
iShares portfolio managers constantly assess the
risk and tax consequences of each transaction
to help reduce risk and maximize tax efficiency.
Delivering on our reputation for low cost and
tax-efficient investments is integral to every
decision we make.
Tax expertise
Fund managers can use a variety of tools to
help manage taxes, so it’s important to select
a manager who has tax expertise.
iShares ETFs benefit from the full power of
BlackRock analytics and iShares’ portfolio
management team.
What you can do
Take a look at your portfolio to find out where you’re sensitive to taxes, and check out iShares.com/tax for more on
what makes iShares ETFs different. For financial professionals, request a tax analysis from iShares today.
1 A long term capital gain is a gain from a sale of a security owned longer than 12 months. A short term gain is from the sale of a security owned for 12 months or less. 43.4% includes
the impact of the highest marginal tax rate of 39.6% and the impact of a 3.8% Medicare Contribution Tax. 2 Source: BlackRock, as of 12/31/2016. Past distributions not indicative of
future distributions. Certain traditional mutual funds can also be tax efficient.
Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other
information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by
visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.
iS-19695-1116
Investing involves risk, including possible loss of principal.
Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains
to shareholders.
The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).
This material is provided for educational purposes only and does not constitute investment advice. The information contained herein is based on current tax laws, which may change
in the future. BlackRock cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source
mentioned. The information provided in this material does not constitute any specific legal, tax or accounting advice. Please consult with qualified professionals for this type of advice.
Views expressed are as of the date indicated and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author,
as applicable, and not necessarily those of Fidelity Investments.
©2017 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc. All other marks are the property of their respective owners.
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