If you receive dividends on your mutual funds and the amount goes directly to buy more shares of the mutual fund, do you pay taxes on the dividends now or when you sell your fund?
2007-02-01 00:39:47 · 7 answers · asked by 6th Finger 2 in Business & Finance ➔ Taxes ➔ Other - Taxes
It depends on how your funds are held.
If they're in a tax-deferred account (eg: IRS, 401(k), 529) then you pay either when you make a withdrawal, or possibly never (eg: Roth IRA & 529 accounts both have tax-free growth).
But if they are held in a non-retirement, non-tax-deferred account, then you pay in the year the dividend was issued, even if you reinvested the dividend to buy more shares.
This applies to capital gains distributions and interest distributions, as well as dividends.
2007-02-01 00:45:50 · answer #1 · answered by maxinestringbean 2 · 0⤊ 0⤋
I was looking for this info last week - I found the following.
The mutual fund manager must send the investor a tax information statement so the investor can declare taxes. The investor must account for all capital gains or loses and dividends even if the dividends and capital gains are reinvested into the mutual fund. When mutual funds shares are sold/redeemed the mutual fund manager should aid the investor in determining the purchase bases for the shares sold/redeemed. Recent federal tax codes have modified the treatment of dividends and capital gains depending on the investor's income level and tax bracket.
2007-02-01 00:48:19 · answer #2 · answered by Jeffrey S 1 · 0⤊ 0⤋
You would pay taxes yearly on any dividends received unless these divendends are received within an RRSP where you are taxed only when you cash in your RRSP or remove funds from it. This is assuming you live in Canada. You also will receive a tax credit for dividends therefore, reducing the amount of tax you are paying on them where as in interest income you pay the full tax.
2007-02-01 00:46:06 · answer #3 · answered by Anonymous · 0⤊ 0⤋
You pay on dividends every year, unless it is a qualified retirement account, then the dividends are not taxed until you draw them out.
2007-02-01 00:57:47 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Yes, unless it is in an IRA.
Reinvesting the dividends is the same as receiving cash.
2007-02-01 00:51:32 · answer #5 · answered by Wayne Z 7 · 0⤊ 0⤋
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2016-11-02 01:08:51 · answer #6 · answered by ? 4 · 0⤊ 0⤋
You pay taxes WHEN you get the money, not if they are reinvested in additional stock.
When you begin to cash out the mutual fund, it will be 'regular' income.
2007-02-01 00:42:37 · answer #7 · answered by words_smith_4u 6 · 0⤊ 1⤋