2007-02-02 20:47:13 · 4 answers · asked by c-squre 2 in Business & Finance ➔ Investing
Mutual funds are required by law to report as taxable income all earned dividends and all realized capital gains during the year. You will receive a 1099 stating the amounts that are in each category. Some mutual funds also have interest income. How you report these incomes depends on which box on the 1099 the amounts are displayed in. Qualified dividend income and long term capital gains receive special tax treatment. They are taxed at about 1/2 the normal rate. Non-qualified dividends and interest are taxed at the full rate.
The amounts invested in mutual funds are not taxable except for the realized gains. Unfortunately, the realized gains can make mutual funds sometimes a very uneconomical way to invest especially if the mutual fund is sitting on a massive unrealized gain when you purchase it and then liquidates those gains. The tax bite can be terrible.
2007-02-03 01:54:58 · answer #1 · answered by Anonymous · 0⤊ 0⤋
If the mutual fund is within a tax qualified plan, such as an IRA or employer-sponsored plan, withdrawals are taxed as ordinary income. The exception is the Roth IRA, from which withdrawals are taken tax-free.
Otherwise, you pay capital gains tax on all gains from transactions within the fund in the year those transactions occurred. Any sale of securities by the fund manager may generate a capital gain. Even if your fund loses money, individual transactions within the fund may cause you to be taxed. This was a major complaint from 2000-2003, when most mutual fund investors experienced this.
Note: As detailed in my first paragraph, Jay's answer is only correct if the funds are within a qualified retirement plan.
2007-02-02 21:37:22 · answer #2 · answered by Rob D 5 · 1⤊ 0⤋
Yes, if you hold a mutual fund without selling it, you can still face taxes.
The reason being that mutual funds buy and sell individualstocks and also receive dividends. The fund have gains when they sell their stocks fora greater amount then what they bought them for. Funds also receive dividends. The gains and dividends are passed back to theinvestor, however, in many case the investor has it automatically reinvested in the fund.
Therefore, without actually receiving any fundsyourself, you can be taxed on what goes on in the fund.
This information should be broken down for you on Form 1099-DIV
2007-02-03 00:43:50 · answer #3 · answered by Peaches 4 · 1⤊ 0⤋
No, it is not taxable income, unless you withdraw the funds.
2007-02-02 20:54:19 · answer #4 · answered by Jay S 5 · 0⤊ 2⤋