Nondividend Distributions

Mutual funds sometimes make distributions that don’t represent earnings. When you receive this type of distribution, you’re considered to be getting back some of the money you invested in the company. That’s why these payments are sometimes called return of capital distributions. The IRS used to call them nontaxable distributions but now calls them nondividend … Continue reading “Nondividend Distributions”

Exempt Interest Distributions

Some mutual funds are established to provide a way to invest in municipal bonds and other securities that produce tax-exempt interest. Distributions from these mutual funds are usually composed mainly of tax-exempt interest. Under the special tax rules for mutual funds, you should treat the tax-exempt interest portion of your dividend the same as if … Continue reading “Exempt Interest Distributions”

Capital Gain Distributions

If a mutual fund has long-term capital gains, it can designate part of its dividend as a capital gain distribution. The shareholders report this part of the dividend as if it were their own long-term capital gain. These amounts are called capital gain distributions or capital gain dividends. This treatment applies only to long-term capital … Continue reading “Capital Gain Distributions”

Mutual Fund Ordinary Dividends

As the term is used in income tax reporting, ordinary dividends include all taxable distributions that aren’t treated as long-term capital gain. That means the number appearing in the box with this label on Form 1099-DIV can include some items that are not exactly ordinary. Qualified dividends Ever since 2003, some or all of your … Continue reading “Mutual Fund Ordinary Dividends”

Mutual Fund Tax Guide

The following pages offer general observations concerning mutual funds, together with details concerning the tax treatment of mutual fund dividends, distributions and allocations. Special rules that apply when you sell mutual fund shares are covered separately as part of our guide to capital gains and losses. Selling Mutual Fund Shares can fall into a number … Continue reading “Mutual Fund Tax Guide”

Capital Gain Allocations

Mutual funds that receive capital gains normally pay them out as capital gain distributions. This page describes a rarely used alternative, in which the mutual fund retains the capital gain and pays tax on it, but makes a capital gain allocation, which passes along to its investors the tax consequences of these events. Which Is which? … Continue reading “Capital Gain Allocations”

Foreign Tax Paid

Some mutual funds invest overseas. These funds are likely to incur foreign taxes on interest, dividends or other income. If the mutual fund meets certain requirements it can allocate this foreign tax to its shareholders, providing them with a tax benefit. If you receive a foreign tax allocation you have a choice. You can claim … Continue reading “Foreign Tax Paid”

Federal Interest Dividends

Some mutual funds invest in Treasury securities and other obligations of the United States government. Interest received by the mutual fund will be included in the ordinary dividend you receive. This type of interest is fully taxable for federal income tax purposes, but may be exempt from state income tax. State exemption for federal interest … Continue reading “Federal Interest Dividends”