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Taxes 2014: The Massive Tax Trap You Must Avoid

Nobody wants to pay any more in tax than they have to. But toward the end of the year, a big tax trap looms for unsuspecting investors, and if you don't use one simple strategy to avoid it, it can cost you a huge amount in additional tax.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, discusses the tax trap that mutual fund distributions bring to taxpayers at year-end. Dan notes that because funds are required to distribute their income and capital gains, they can catch unsuspecting fund shareholders by surprise. Especially after long bull markets, funds are more likely to make big taxable distributions.

Dan discusses a recent Morningstar finding that T. Rowe Price  (NASDAQ: TROW  ) , Janus Capital  (NYSE: JNS  ) , and BlackRock  (NYSE: BLK  ) could have several funds with large distributions, because of recent changes in fund management or strategy that required big changes to their portfolios. He concludes with the easy solution that fund investors can use to avoid getting in tax trouble with such funds.

Be smart about your taxes
Avoiding tax traps is just one way you can help reduce your bill to Uncle Sam. In our brand-new special report "How You Can Fight Back Against Higher Taxes," The Motley Fool's tax experts run through what to watch out for in doing your tax planning this year. With its concrete advice on how to cut taxes for decades to come, you won't want to miss out. Click here to get your copy today -- it's absolutely free.


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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