The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: another mutual fund question||Date: 4/10/1998 10:13 PM|
|Author: TMFTaxes||Number: 3402 of 120456|
[[Thanks ...I think I am finally starting to understand all this ...another point...if I have the dividends
paid to me directly, I will still eventually have to pay ordinary dividend interest on this money at tax
time, correct? So either way does it really matter which way I do it?]]
From a pure tax standpoint, it makes no difference. You'll be assessed tax on the dividend distributions regardless of if you take the distributions, or reinvest them. If you take them, you'll not have to deal with the problem of adjusting your basis for the reinvested dividends.
[[ Also....Besides the obvious reasons why people buy mutual funds(having other people handle your
money) why would someone want to pay cap gains taxes every year thru the fund and then again
when we sell the shares of the fund? Aren't we actually being taxed twice on the same money or am
i missing something?.]]
Nope. When you reinvest the shares, you are buying additional shares at new prices. So your basis in the fund is increasing everytime your dividends are reinvested. So you are only paying tax on the distributions once.
Have you read IRS Publication 564 yet? It really does explain these issues pretty well.
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