Some types of funds are inherently tax-inefficient. Sell specific shares . When you sell shares in a fund, your taxable gain is determined by the sale price minus your cost basis in the fund. Let's say you dollar-cost averaged into a fund, thereby picking up shares at different prices. For most fund companies, the default cost basis is the average of the cost basis on your individual shares.
Many investors can save on taxes by identifying specific shares to be sold.
Unfortunately, this rule applies only to funds on which you've never sold shares using the average-cost method, because once you use that method on a fund, the IRS requires that you continue to use it. Sell purposefully . Suppose you own a fund that's been a longtime loser. In fact, it has underperformed to the extent that you have a loss on your investment. Think about using that loss to your advantage.