Editing Index fund (section)

== Tax considerations ==
=== International tax considerations ===
Typically mutual funds supply the correct tax reporting documents for only one country, which can cause tax problems for shareholders citizen to or resident of another country, either now or in the future.

==== Implications for US investors ====
US citizens/taxpayers living at home or abroad should particularly consider whether their investment in an ex-US fund (meaning the fund is administered by a foreign investment company) not providing annual 1099 forms (which report distributed income and capital gains/losses) or annual PFIC annual information statements will be subject to punitive US taxation under section 1291 of the US tax code. Note that if a PFIC annual information statement is provided, a careful filing of form 8621 is required to avoid punitive US taxation.<ref>{{cite journal
| last        = Gianni
| first       = Monica
| date        = 2014
| title       = PFICs Gone Wild
| url         = https://scholarship.law.ufl.edu/cgi/viewcontent.cgi?article=1628&context=facultypub
| journal     = Akron Tax J.
| volume      = 29 
}}
</ref><ref>
{{Cite web|url=https://www.irs.gov/instructions/i8621|title=Instructions for US form 8621}}
</ref>

=== U.S. capital gains tax considerations ===
U.S. mutual funds are required by law to distribute realized capital gains to their shareholders. If a mutual fund sells a security for a gain, the capital gain is taxable for that year; similarly a realized capital loss can offset any other realized capital gains.

Scenario: An investor entered a mutual fund during the middle of the year and experienced an overall loss for the next six months. The mutual fund itself sold securities for a gain for the year, therefore must declare a capital gains distribution. The [[Internal Revenue Service|IRS]] would require the investor to pay tax on the capital gains distribution, regardless of the overall loss.

A small investor selling an ETF to another investor does not cause a redemption on ETF itself; therefore, ETFs are more immune to the effect of forced redemption causing realized capital gains.