Mutual Funds + Capital Gains = Tax Confusion @AdviceIQ

Uncle Sam IRSDid you invest in a mutual fund that went down in value? And then your tax preparer says you owe taxes on gains! What gives? How can one owe taxes when your value says you lost money?

The original blog … Mutual Funds and Capital Gains = tax confusion! … that inspired my syndicated article below …. explains BOTH sources of mutual funds capital gains taxes in more detail.

One source of capital gains is from what the fund manager does – and is the source of this type of tax confusion. The second source of capital gains results from your actions. Both result in money you received, why it is called a gain.

The first source is confusing because the fund used your proportional share of those gains to buy you more shares in the fund (unless you had them send the cash to you instead). You received an “economic benefit” from your share of those gains (gains net of losses) … and that is why you owe the capital gains tax.

The second source is easier to see because the gain is the difference between the amount you received when you sold some shares in the fund and your “cost basis.”

The below article discusses how this may happen when a fund value goes down and there are still capital gains you’re taxed on.



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One Response to Mutual Funds + Capital Gains = Tax Confusion @AdviceIQ

  1. Larry Frank, Sr. March 16, 2015 at 8:06 am #

    The above article was picked up by USA Today to highlight as a “More” link at the end of two articles:

    “Your retirement fund: Smart ways to withdraw”

    “File and suspend: Smart Social Security plan?”

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