Thus, from an investment standpoint it's a wash, he said, but Uncle Sam still requires you to pay taxes on the fund's distribution.How much you'll owe in taxes depends on the type of distribution you receive and the amount you invested.You will owe income taxes on the distributions from your equity fund unless your shares are held in a tax-deferred or tax-free account.In the case of capital gains distributions, earnings are taxed based on how long the fund has owned the shares, not how long you've owned shares in the fund."If you're planning to buy the stock, buy the stock," Katz said."If you bought at 0, it falls to after the ex-dividend date and you eventually sell it for 0, what does it really matter?
Weigh feisty bond alternatives If a fund makes sense within your portfolio, especially if you intend to buy and hold, the ex-dividend date should not weigh heavily on your investment decision.Pros, cons of tax-loss harvesting Qualified dividends may be taxed at the lower capital gains rate—15 percent for most middle-income taxpayers and 20 percent for high-income earners—depending on an investor's modified adjusted gross income. But typically, shareholders know well in advance when that company will pay out, often quarterly, allowing plenty of lead time to avoid the ex-dividend date.Actively traded mutual funds keep shareholders guessing.Ordinary dividends and interest are taxed as ordinary income, the top rate for which now stands at 43.3 percent for those in the highest income-tax bracket (39.6 percent), who also owe the 3.8 percent Medicare surtax on net investment income.Short-term capital gains from the sale of investments held for one year or less are also taxed at the higher ordinary income rate, while long-term capital gains on gains from the sale of shares held for one year or more are subject to the more favorable long-term capital gains rate.