During the year, they may sell some of those investments, resulting in capital gains or losses inside the fund.

Mutual funds and exchange-traded funds (ETFs) hold lots of underlying investments like stocks and bonds. But they won’t reduce your actual tax bill. (Looking for help with a financial question? This tool can help match you with potential advisors.) What Are Capital Gains Distributions? As for your investment account, those institutions typically only offer withholding when you sell securities or take retirement account distributions.īe aware that using these strategies will reduce the balance you have to pay when you file your taxes. It’s possible that the company would facilitate that but not likely. You have two main options for paying taxes throughout the year rather than dealing with a huge tax bill in April: adding or increasing withholding taxes from another income source, or making quarterly estimated tax payments.Ī third possible option would be to contact the mutual fund generating the capital gains distributions directly and ask it about withholding.

(Looking for help with a financial question? This tool can help match you with potential advisors.) Read on for more information on how to manage your tax liability throughout the year. Taking proactive steps to anticipate and “prepay” your tax bill can help you avoid an unmanageable balance due in April. As capital gains distributions are unpredictable and usually unknown until the end of the year, it can be difficult to properly plan for them.

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