Less-Taxing Investing

Mutual fund shareholders, get your No. 2 pencils and your green eyeshades ready. It's tax season once again and unless your fund manager acted as though every day was April 15 -- or, in this year's case, April 17 -- be prepared to account for a big year of capital gains.

Equity markets were up for a third straight year, and most mutual fund managers have long since exhausted their tax-loss carry forwards from the bear market. As a result, taxable capital-gains distributions doubled in 2005 from 2004.

Mutual funds are required by law to distribute at least 90% of their realized capital gains and dividend income to shareholders at the end of their fiscal year. That extra cash is taxable to you, whether you get a check in the mail or reinvest those distributions back into the fund. ...