Search
Close this search box.
Home / Articles / 2 tax pitfalls of mutual funds

2 tax pitfalls of mutual funds

July 16, 2014

Share:

Investing in mutual funds is an easy way to diversify a portfolio, which is one reason why they’re commonly found in retirement plans such as IRAs and 401(k)s. But if you hold such funds in taxable accounts, or are considering such investments, beware of these two tax pitfalls:

1. Mutual funds with high turnover rates can create income that’s taxed at ordinary-income rates. Choosing funds that provide primarily long-term gains can save you more tax dollars because of the lower long-term rates.

2. Earnings on mutual funds are typically reinvested, and unless you keep track of these additions and increase your basis accordingly, you may report more gain than required when you sell the fund. (Since 2012, brokerage firms have been required to track — and report to the IRS — your cost basis in mutual funds acquired during the tax year.)

If your mutual fund investments aren’t limited to your tax-advantaged retirement accounts, we’d be pleased to help you assess the potential tax impact and suggest ways to minimize your tax liability.

© 2014

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

Guidance

Related Articles

Article

2 Min Read

Embracing the Future: Strategic HR Has a New Name, New Image, New Office

Article

2 Min Read

Reducing Your Company’s Tax Liability in 2023: 5 Strategic Tips

Article

2 Min Read

IRS Extends Delay of New Reporting Threshold for Cash Apps

Article

2 Min Read

3 Tips to Maintain Integrity through Economic Pressure

Article

2 Min Read

Audit Requirements for Defined Contribution Plans are Changing 

Article

2 Min Read

IRS Releases 2024 Cost-of-Living Adjustment Numbers 

Get in Touch.

What service are you looking for? We'll match you with an experienced advisor, who will help you find an effective and sustainable solution.

  • Hidden
  • This field is for validation purposes and should be left unchanged.