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The key step when deciding who pays the tax on a gain under an investment bond is to establish who the owners of the bond are when the gain arises. The tax treatment then depends on whether the bond is individually owned or held under a trust / the type of trust.
The reinvestment of mutual fund distributions -- dividends and capital gains -- does increase your cost basis. A higher basis is a good thing because you will pay less in capital gains taxes with a higher basis if you sell your fund shares.he taxable gain is the sale price minus the cost basis. The higher basis from including distribution reinvestments results in a lower taxable gain and less money due in capital gains taxes. If the amount received from selling your fund shares is less than your cost basis, you have a capital loss.