Don't Let The Taxman Eat Your Lunch

You can dodge fund distributions and avoid a tax bite

Perhaps you saw the 329% return the Warburg Pincus Japan Small Company Fund posted in 1999 and decided back in January to jump on board. Big mistake: Since then, the fund's value has fallen by nearly 50%. And in August, it dropped the other shoe--right on your wallet. Like some other Japan funds, this one recently sold many of its winning stocks for big gains--gains for which you'll owe taxes next April even though you were not around to enjoy them. The result: For every $1,000 you invested, you got hit with $280 in short-term capital gains, and depending on your tax bracket, you could owe as much as $110 in taxes.

To continue reading this article you must be a Bloomberg Professional Service Subscriber.