Tax Tip of the Week
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For the week of
November 20, 2000
Watch your timing on mutual fund purchases
If you are planning to invest in mutual funds near the end
of the year, watch for dividend distributions.
If you purchase a mutual fund just before a distribution date, you will receive the distribution and be required
to include it in your taxable income. Since the price of the fund shares before and after a dividend distribution
reflect the amount of the dividend, you are actually paying income tax on part of your own purchase price.
Let's assume that you purchase $10,000 of NewFund on December 5th. On December 10th they pay you a dividend of
$600, and the value of the fund goes to $9,400. You will be taxed on the $600 even though you have only owned the
funds for five days.
To avoid this problem, purchase your fund shares a couple of days after the record date.
If you would like assistance with your tax planning,
please contact us. You do not need to be a current client of our firm to call with your questions. We are here
to help you.
Click here to view previous tax tips.
"Tax Tips" are published weekly to
provide useful tax information. Return to this site every week for helpful tax-cutting suggestions, tax reminders,
and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
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