The income tax effects of mutual funds can be complex, and poorly timed purchases or sales can create unpleasant year-end surprises. Mutual fund investors (excluding qualifying retirement plans) are taxed based on activities within each fund. If a fund investment generates taxable income or the fund sells one of its investments, the income or gain must be passed through to...

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Mutual funds offer an efficient means of combining investment diversification with professional management. Their income tax effects can be complex, however, and poorly timed purchases or sales can create unpleasant year-end surprises. Mutual fund investors (excluding qualifying retirement plans) are taxed based on activities within each fund. If a fund investment generates taxable income or the fund sells one of...

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Many mutual fund companies allow you to switch funds without a penalty or commission, as long as you stay within their family of funds. There’s a catch though. Unless the funds are in a tax-deferred retirement account, you could owe income tax each time you make a switch. When you move money between funds, the IRS considers it a sale....

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