It’s been a good year for the stock market; many portfolios are showing a decent gain. This is true for mutual funds also.
But mutual funds have a little tax quirk – they must distribute their capital gains to their shareholders. This is all well and good, except that most shareholders just reinvest the dividends in new shares.
However, come tax time, that little 1099 form that shareholders get might show a nice amount in the capital gains column. This is additional taxable income, even though the shareholder never saw the cash.
Now might be the time to check whether one’s mutual fund is going to distribute a large capital gain dividend. This information is usually known by this time. Although nothing can be done about the dividend if it’s coming, if one has other capital losses that can be taken, taking such losses will reduce or eliminate the tax on the mutual fund capital gain.
