Tax Season Tips

A few simple tax tips of record-keeping, investing, and reporting can apply to most investors and can help you save money.

Reinvest Dividends

Investors can limit capital gains on the sale of mutual fund shares by automatically reinvesting dividends in the fund. Reinvested dividends increase your investment in a fund, effectively reducing your taxable gain (or increasing your capital loss).

Say you originally invested $5,000 in a mutual fund and had $1,000 in dividends reinvested in additional shares over the years. If you then sold your stake in the fund for $7,500, your taxable gain is $1,500 ($7,500 minus the original $5,000 investment and the $1,000 reinvested dividends). Many people forget to deduct their reinvested dividends and end up paying tax on a higher amount.