The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: Avoid Mutual Fund taxes by getting stock ?||Date: 9/23/1998 12:59 AM|
|Author: TMFTaxes||Number: 5445 of 123001|
[[I am in the process of becoming Foolish and slowly exiting Mutual Funds in favor of direct investing
Congratulations to YOU!!
[[ My question is: Can you postpone capital gains taxes on money that is in these mutual funds by
receiving stock instead of cash ?]]
Nope. Sorry. If you receive shares instead of cash, Uncle Sammy calls these "reinvested dividends", and will tax you on the dividends. In effect, the mutual fund is giving you the cash, and then you are turning right around and buying more shares. You are simply getting the shares directly to bypass the middleman.
Please don't confuse stock dividends received from your mutual fund company (generally always taxable) with stock dividends (or splits) received from normal stock (generally always non-taxable). They are two different animals.
[[ I remember several prospecti saying that the mutual funds had the Option to send you stock
certificates if selling stocks to raise cash would be disruptive to other fund members.]]
Oh...NOW I see. The mutual fund will give you the UNDERLYING shares of stock. This is simply a saftey valve (as I understand it) so that the mutual fund can remove shares without making a sale. In over 25 years of investing, I have never actually seen a mutual fund do this.
[[ I was just wondering if you could ask for 166 shares of Dell @60 instead of $10,000 and just
move your cost basis of say $4000 over to the stock and not have to immediately pay gains on
You can certainly ask. But the option is in the hands of the mutual fund. It isn't your option. So I doubt very seriously that they would comply with your wishes.
But if they did, there would be no taxable transaction until you sold the Dell shares, and your basis in the mutual fund would carry over to the Dell shares.
Sorry I misunderstood your question in the beginning. I hope that you got the right answer in the end.
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