Tax Suprise for Switching Funds

Switching funds can bring a tax surprise

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. You’ve sold shares in the first fund, then reinvested the proceeds in the second. As a result, you’ll owe income tax on any gain.

You should consider switching funds when it makes economic sense to do so. Just don’t forget that Uncle Sam may have his hand out at tax time.

To discuss the tax implications before making a switch, give us a call.

Tax Preperation Waukesha, Milwaukee Tax Preparation, Small Business tax Preparation

Edith Christian CPA
N9 W29360 Thames Road
Waukesha, WI 53188
262-646-2008