Peyton Glover CFP®  

CONNECT

Address:

3625 E Thousand Oaks Blvd Ste 266
Westlake Village, CA 91362

Phone:

(805)494-5094

Fax/Other:

(805)494-5093

Mutual Funds Taxed

How Are Mutual Funds Taxed?

Many people have heard the Benjamin Franklin quote, “In this world nothing is certain but death and taxes.” Mutual fund taxes can be onerous. However, if you understand the complexities of mutual fund taxes and are prepared when tax season comes around, you may be able to lessen the blow.  

Dividends and Capital Gains

The first thing to remember is that you generally must report any mutual fund distributions as income. Even if you reinvest your profits, the federal government still views this as personal income. Your mutual fund will send you a Form 1099-DIV describing what earnings to report on your income tax return. There are two main ways that mutual funds are taxed: dividends and capital gains.

Dividends represent the net earnings of the fund. Qualified dividends, with some exceptions, are dividends received from domestic and foreign corporations after 2002. Foreign dividends must be securities that are traded on U.S. exchanges or have IRS approval.

Capital gains are profits from investor trading or distributions given to shareholders after revenue is taken in from the fund manager’s sales of securities. Provisions in the tax law allow you to pay lower capital gains taxes on the sale of assets held more than one year. These are referred to as “long term” capital gains.

Long-term capital gains and qualified dividends are taxed at 15 percent for single filers whose taxable incomes range from $39,376 up to $434