As the year starts its journey towards the end, many are looking to invest or shelter some money from taxes. But when purchasing you need to be wary if you buy a mutual fund late in the year. If it pays a dividend in 2012 after your purchase, you owe tax on the payout this year. This is also true of individual stock purchases.
Unfortunately you would not be better off financially because the market price falls by the corresponding amount.
The net effect is that you end up prepaying your tax to IRS. To avoid this buy the shares after the dividend’s record date. If you have any questions please let us know.