2007 was a fair year for stocks, but as Marketwatch reports it was a great year for the IRS:
Many mutual-fund investors will get an unpleasant surprise from their tax preparer this year: A bill for the distributions they got from their funds, even though those funds may have had a disappointing year.
Year-end numbers for 2007 are not available yet, but it's clear that distributions will amount to a record of more than $500 billion. You read that right: a half-trillion dollars, nearly $100 billion more than in 2006, and that was the previous record.
That means $1 of every $23 invested in funds today was recycled, passed back to the shareholder and, in most cases, back to the fund again, creating a tax liability along the way. By the time final numbers are in, investors with taxable fund accounts will have paid Uncle Sam more than $25 billion for the privilege of playing buy-and-hold in 2007."
If you've owned a fund for a few years, don't be too concerned if you get a year-end taxable distribution. Heck, if you traded the stocks yourself directly you'd have some tax liability each year. What can be a problem is when a fund has to sell shares to meet redemptions of exiting investors. Those sales can lead to realized taxable distribution to some poor saps who bought the fund just recently, and have so far made nothing on their investment.
Until mutual funds can start tracking gains to each shareholder, getting somebody else's taxable gains will be a problem for fund investors, and one reason exchange traded funds are bringing in gobs of new money.
Love Thy Neighbor, Pay Their Fund Taxes
2007 was a fair year for stocks, but as Marketwatch reports it was a great year for the IRS:
Many mutual-fund investors will get an unpleasant surprise from their tax preparer this year: A bill for the distributions they got from their funds, even though those funds may have had a disappointing year.
Year-end numbers for 2007 are not available yet, but it's clear that distributions will amount to a record of more than $500 billion. You read that right: a half-trillion dollars, nearly $100 billion more than in 2006, and that was the previous record.
That means $1 of every $23 invested in funds today was recycled, passed back to the shareholder and, in most cases, back to the fund again, creating a tax liability along the way. By the time final numbers are in, investors with taxable fund accounts will have paid Uncle Sam more than $25 billion for the privilege of playing buy-and-hold in 2007."
If you've owned a fund for a few years, don't be too concerned if you get a year-end taxable distribution. Heck, if you traded the stocks yourself directly you'd have some tax liability each year. What can be a problem is when a fund has to sell shares to meet redemptions of exiting investors. Those sales can lead to realized taxable distribution to some poor saps who bought the fund just recently, and have so far made nothing on their investment.
Until mutual funds can start tracking gains to each shareholder, getting somebody else's taxable gains will be a problem for fund investors, and one reason exchange traded funds are bringing in gobs of new money.
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