How Do You Understand Mutual Fund Taxes?
A mutual fund pools the funds of many investors and then uses those funds to purchase investments in various securities. The investor receives shares in this pool that correspond to the amount of money invested in the pool. Mutual funds are pass-through entities, which means they don’t pay taxes. Instead, all taxable income is passed on to shareholders via distributions. Additionally, when investors sells their mutual fund shares, they may also be taxed on any profits from the investment. Taxes are due whenever selling mutual fund shares results in a profit. These taxes are called capital gains taxes. There are two kinds of capital gains: short-term and long-term. Know the difference between short-term capital gains and long-term capital gains. Short-term capital gains are due on mutual fund shares held for less than one year from the date of purchase. Long-term capital gains are due on mutual fund shares held for more than one year from the date of purchase. Figure out the difference
