The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: Question for TMFTaxes||Date: 10/9/1997 11:16 AM|
|Author: TMFTaxes||Number: 492 of 123001|
<<If you're directing that the cap gains and dividends be
directed back into the fund, are they taxable in the
current year or are they deferred until you start withdrawing the proceeds?>>
Reinvested dividends ARE taxable to you, Mike...in the year that the dividends are distributed to your account, and NOT necessarily when you withdraw them from the account. And will be reflected as such on the 1099 form that you'll receive at the end of the year from the mutual fund company.
Reinvested dividends simply mean that you are ELECTING to take your distributions (taxable), and purchase additional shares with that distribution. But instead of sending you the check, and waiting for you to sent them a check back, the mutual fund company simply "bypasses the middleman" and directly reinvests the dividends.
But, in effect, and in the eyes of Uncle Sammy, you have received taxable distributions, and have purchased additional mutual fund shares at different prices.
Which, as you might imagine, will change your basis (or cost, for tax purposes) in the mutual fund. When you purchase additional sh