Tax implications liquidating mutual funds internet dating stds
The tax law generally treats mutual fund shareholders as if they directly owned a proportionate share of the fund's portfolio of securities.Thus, all dividends and interest from securities in the portfolio, as well as any capital gains from the sales of securities, are taxed to the shareholders. Distributions of ordinary dividends, which come from the interest and dividends earned by securities in the fund's portfolio, represent the net earnings of the fund. Like the return on any other investment, mutual fund dividend payments decline or rise from year to year, depending on the income earned by the fund in accordance with its investment policy.A further complication, which works in taxpayers favor, is this: Say your taxable income, apart from long-term capital gains and qualified dividends, puts you in a tax bracket below 25% (thats below ,800 on a joint return).In this case youll get the benefit of the lower rate (10% for pre 5/6/03 long-term gains, 5% for post 5/5/03 long-term gains and 2003 dividends whenever received) on the amount of gain between your taxable income and the start of your 25% bracket.
A mutual fund owner may also have capital gains from selling mutual fund shares. Two different sets of long-term capital gains rates apply for capital gains distributions and for sales of mutual fund shares during 2003, making an already complicated rule more complicated.
For capital gains distributions received before 5/6/03 and for gains on shares held long-term (more than a year) when sold before 5/6/03, the tax rate is 20% of net gain (except 10% if the taxpayer is otherwise below the 25% bracket). The 15%/5% rates apply through 2008, except that the 5% rate becomes 0 in 2008.
The rates revert to 20% and 10% (as before 5/6/03) in 20, with an 18% rate for certain assets held more than 5 years, see below.
The 2003 Act imposes several different tax rates in 2003 on the same person, for the same kind of transaction, depending on tax bracket, period held, and when during the year the transaction occurred.
Official Washington is predicting massive taxpayer confusion, tax reporting complexities and mistakes, resulting from the capital gains changes. Mutual funds sometimes retain a part of their capital gain and pay tax on them.