Did you know that even if you don’t sell your mutual funds, you have to pay taxes on capital gains and dividends? Every year mutual funds are required to distribute all of their dividends and capital gains to their shareholders, so you will get these distributions every year (dividends can be distributed monthly, quarterly, semi annually or at the end of the year, capital gains usually at the end of the year.) The worst thing is if you have requested that the funds reimvest these items in more mutual fund shares, not only do you have to pay tax on the money, you don’ have the money to pay the taxes! If you are in a low enough bracket some or all of these distributions may not be taxable by the feds (notice I didn’t mention the state) but it is a good idea to check your mutual fund account online or call your mutual fund shareholder services and see what gets distributed and when. You may avoid some nasty surprises when you file your taxes next year.