About this time of year, millions of mutual fund investors begin getting some shocking news. Their funds are going to generate big tax bills for them next year. Make no mistake about it, taxes on an investment portfolio are not a good thing. Every penny that leaves the field to march off to the IRS is a penny that can t grow for our tomorrow. It s gone forever.
Many investors didn t do anything.
They didn t sell. To make matters worse, some of them even will have losses on their portfolios. As surely as night follows day, the press will pick up the story, citing the worst offenders, but tarnishing all funds in the process. A little primer on mutual fund taxation is in order here. Every time a fund buys or sells a stock or bond, it realizes a capital gain or loss.