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Old 12-16-2013, 03:14 PM   #21
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Originally Posted by Rustward View Post
Would it be correct just to say that the investor has to track the basis of all shares?

That is where I am coming from.
The broker now tracks all of this. You can do it if you want, but when you sell the broker will report the gain (to the IRS) according to what they have on file. Turn on "specific shares" cost basis method if that's what you want them to use for the shares purchased with dividends, it provides more flexibility than "average cost", FIFO, etc.
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Old 12-16-2013, 03:49 PM   #22
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The broker now tracks all of this. You can do it if you want, but when you sell the broker will report the gain (to the IRS) according to what they have on file. Turn on "specific shares" cost basis method if that's what you want them to use for the shares purchased with dividends, it provides more flexibility than "average cost", FIFO, etc.
I guess I thought we were referring to non-covered shares. Otherwise there would be no reason to even bring up the subject.
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Old 12-16-2013, 04:25 PM   #23
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I guess I thought we were referring to non-covered shares. Otherwise there would be no reason to even bring up the subject.
Since the title of the thread and most of the comments are about what to do with dividends today, including reinvesting them, and since every dividend reinvested today in equities must buy a covered share, it seemed relevant. I guess not all would agree.
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Old 12-16-2013, 08:23 PM   #24
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I agree.

Just checked last year's 1099-DIV for Wellesley dividends that I received and ~28% of all dividends were qualified. This roughly matches the ~35/65 mix of Stocks/Bonds that the Wellesley fund holds
One other item to keep in mind - if a fund has short-term capital gains, then those distributions are treated as non-qualified dividends, and fully taxable at your marginal income tax rate.
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Old 12-16-2013, 11:01 PM   #25
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One other item to keep in mind - if a fund has short-term capital gains, then those distributions are treated as non-qualified dividends, and fully taxable at your marginal income tax rate.
Wellesley usually pays out cap gains once per year and categorizes them as long term and short term.

Not saying that they don't report some short term gains as non-qualified dividends, I just don't know.
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Old 12-16-2013, 11:35 PM   #26
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One other item to keep in mind - if a fund has short-term capital gains, then those distributions are treated as non-qualified dividends, and fully taxable at your marginal income tax rate.
Because a mutual fund's short-term cap gain distributions are classified as ordinary dividends for tax purposes, they cannot be offset by capital losses arising from the sale of other assets including from your sales of shares of that same fund ("Tax Loss Harvesting"). This is unlike long-term cap gain distributions which can be offset by losses.

Back in 2010 I had a huge short-term cap gains distribution from a bond fund I own. It was actually 3% of the bond fund's NAV which is a pretty large percentage. I owned a lot of shares in that bond fund so I got hit with a big tax bill I could not TLH to reduce.

Fidelity always reports in its 1099-DIV form how much it paid out in ordinary dividends, qualified dividends (including short-term cap gain distributions), and (long-term) cap gain distributions. I also get a 1099 form which shows how much tax-free interest I receive.

One more thing about cap gian distributions I discovered back in 2003 when the market began zooming upward after its downturn in 2001-2002: Buried deep within the fund's annual statement it shows how much the fund held in capital loss carryovers. The fund uses these losses to offset capital gains so in 2003 while the NAVs were rising quickly the fund made no cap gain distributions because it used the capital loss carryovers to offset any cap gain distributions it would have made otherwise. It also kept the cap gain distributions low in 2004 but by then it had exhausted them all so we began receiving those distributions again.
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Old 12-17-2013, 06:01 AM   #27
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Yeah, that's a downside of the tax treatment for mutual funds - don't know why they don't treat them as short-term gains on the schedule D instead of lumping them in with dividends.
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Old 12-17-2013, 06:06 AM   #28
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Wellesley usually pays out cap gains once per year and categorizes them as long term and short term.

Not saying that they don't report some short term gains as non-qualified dividends, I just don't know.
It's the ultimate 1099/Sched B that determines how it falls out on the Schedule D and for some reason mutual fund short-term gains distributions are re-characterized as dividends there, which stinks if you have some short-term losses to use against them.
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Old 12-17-2013, 11:11 AM   #29
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It's the ultimate 1099/Sched B that determines how it falls out on the Schedule D and for some reason mutual fund short-term gains distributions are re-characterized as dividends there, which stinks if you have some short-term losses to use against them.
Thanks.
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