Exchange traded fund (ETF) investors will appreciate this: the tax tab on mutual funds this year will be a doozy.

Every year at this time, mutual funds pass on dividends and capital gains to their investors. Since the numbers are predicted to be especially high, the taxes are going to be similarly large, reports Eileen Ambrose at the Orlando Sentinel.

It’s too late for 2007, but Ambrose offers up some suggestions for next year. Among them is to take a look at ETFs, thanks to their tax efficiency. You typically only pay taxes when you redeem your ETF at a profit, not when investors sell their shares, giving you more control over your tax situation. ETFs are tax efficient, but not tax-free, so it is possible to have capital gain distributions, however, their percentages are lower than conventional mutual funds.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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