Do I have to pay capital gains and dividend tax on a Mutual Fund I plan to keep for 5 years?

Question

I own some shares of a mutual fund. Will I be taxed in the coming years on the capital gains and dividends, even if I reinvest them and do not sell any shares?

And in what way will I be taxed?

Answer 1

Yes

Each year when your mutual fund earns dividends or capital gains, you receive your share and it is reported to the IRS on a 1099DIV. You receive a copy of the 1099DIV.

You report the information from the 1099DIV on your tax return, normally on Schedule B. This income is taxable in the year distributed by the fund, whether you reinvest the income or receive it as cash. If you reinvest this income in the fund, it is added to your original investment and will not be taxed again (your "basis").

When you sell the mutual fund, if the selling price is more than your basis in the fund, you will pay capital gains tax on the increase in value.

Answer 2

Yes you will. You will pay income tax on the dividends whether you take the money out or reinvest them. And you'll pay capital gains tax on your share of the capital gains of the funds for each year. The amount of capital gains will be added to your basis though, so you won't pay tax again on that amount when you sell the shares.

Answer 3

You are taxed every year on dividends and capital gains distributions. The mutual fund will provide Form 1099 with the information. Sale of fund shares does not trigger any additional tax liability.

Answer 4

You will pay tax on any gain if you are lucky enough to have any. If you keep the mutual fund for more than a year, the gain will be taxed as a long term capital gain, which is limited to 15%. If you sell the fund within a year, it will be subject to your ordinary income tax rate.

Answer 5

Yes, you do. Capital gains on mutual funds investments do not work like direct stock investing. The gains are "passed through" on an annual basis from the fund company to shareholders.

Answer 6

Yes, unless the mutual fund is inside a 401K or IRA.

Answer 7

If you invest via an offshore company you have no tax.
If you invest straight from onshore you pay tax ..but you can be structured with offsetting losses so your earnings can be tax free.