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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Re: Taxes on FF vs Index fund Date: 1/27/1999 7:20 PM
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[[However, one thing I have yet to see discussed is how to calculate taxes on
these investments at the end of the year. I've heard that investing in the FF is
easier when it comes to tax time, because the buy price is clear and profits are
easily calculated.]]

That's basically true.

[[ How is this different for an index fund?]]

Because an index fund is a mutual fund, and the rules are a bit different. If you reinvest your dividends, you are really buying additional shares and new prices and different times. So when you sell some or all of the mutual fund shares, some may be short term, some may be long term, and the average basis computations are a bit trickier.

[[I thought when you
invest in a fund, you buy shares that have a value, so its kind of like a stock, isn't
it?]]

Kinda...and if all you do is make your original purchase and then take any future dividends in cash, they are VERY similar. But most people reinvest their dividends, which complicate matters somewhat.

[[ Again, I confess to being new at this, any and all help is appreciated. ]]

Then you might want to check out the TMF Investment Tax Guide, where many of these basic issues (such as what you are asking) are discussed in great detail, with examples and formulas. It was written for the new investor, and deals with many of the tax issues that you'll deal with on a daily basis as an investor. Check it out.

TMF Taxes
Roy

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