Mutual Funds FAQ
All mutual funds distributions should be reported as income, whether you reinvest or not. Taxable distributions come in two forms, ordinary dividends and capital gains. The distributions of ordinary dividends represent the net earnings of the fund and are paid out periodically to the shareholders. Since these payments are considered to be dividends to you, they must be accounted for accordingly.
Capital Gain Distributions are the net gains of the sales of securities in the fund’s portfolio and will be taxed at a different rate than that of ordinary dividends. Yearly, your mutual form will send you a form, called the 1099-DIV, which will have a detailed breakdown of all of these.
Funds will generally give you the opportunity to automatically reinvest in the fund. This does not prevent you from paying tax on your assets, but this reinvestment will prevent you from paying more “buy” fees to get into the fund, so it is advantageous.
Mutual funds sometimes will distribute back to shareholders monies that haven’t been attributed to the funds earnings. This is a non-taxable distribution.
Stocks are traded in quantities of 100 shares, called round lots. Any quantity of stock under 100 shares will be considered an odd lot.
Most stocks are common stocks. However, there is another type (known as preferred) which gives certain advantages regarding dividends. Generally, preferred stock holders do not have the same voting rights that the holders of common shares do. Common stocks are based on company performance, while preferred stocks will usually have a stated dividend.
It is fairly easy to invest in foreign corporations, because these corporations need to register these securities with the SEC. These companies are subjected to the same rules as U.S. companies.
Herman and Company CPA’s proudly serves Rye NY, Larchmont NY, Scarsdale NY, Katonah NY, Chappaqua NY, Bronxville NY, Dobbs Ferry NY and beyond.