Tax Pointers for Investors in Mutual Funds
Mutual-fund investments relieve you of the responsibility of making daily investment decisions for securities actively traded or affected by changing market conditions. The rules for reporting the different types of distributions vary and require you to pay close attention to the many boxes on Form 1099-DIV.
As a mutual-fund shareholder, you may receive several types of distributions, such as:
- Ordinary dividends
- Capital gain distributions
- Exempt-interest dividends
- Return of capital distributions
Different methods of identifying sold shares and determining the cost basis of those shares will allow you to better control the gain or lass you report in a given year. Additionally, the choice of cost basis methods will affect the computation of gain or loss on a sale of shares.
