Basic tax questions

[Gearhead Jim]

Here's what I think I know:

Distributions from a traditional IRA are taxed as ordinary income, regardless of what investments were in the IRA.

Interest on a CD is taxed as ordinary income.

My questions:

Outside of an IRA, how and when are gains in a stock mutual fund taxed?

Outside of an IRA, how and when are gains on individual stocks, held in a brokerage account, taxed?

Finally, what are the capital gains rates now, and what do you predict them to be when the current tax cuts end?

Thanks!

 

[ats5g]

Outside of an IRA, how and when are gains in a stock mutual fund taxed?

When a MF sells a stock/bond for a gain [called realizing a capital gain], the MF must distribute that capital gain to the fund's shareholders. However, the MF can also sell a stock/bond for a loss to offset a gain, and thus, not having to distribute that gain to the fund's shareholders. MF can realize short or long term capital gains. IIRC, Short term gains that the MF distributes are usually taxed at your ordinary income rates, where long term gains are taxed at lower rates.

The MF must also distribute any dividends its receives from the underlying stocks/bonds to the fund's shareholders.

Depending on the MF [stock fund, bond fund, etc], the MF may distribute the dividends and gains monthly, quarterly, etc. Check the MF family's website or prospectus.

Outside of an IRA, how and when are gains on individual stocks, held in a brokerage account, taxed?

Gains are taxed whenever you sell a stock for a gain and can't offset than gain with a loss from selling another asset [stock/bond]. Dividends are also taxed when the companies that you own stock of distribute the dividends. Like gains from MF Short term gains are usually taxed at your ordinary income rates, where long term gains are taxed at lower rates.

Finally, what are the capital gains rates now, and what do you predict them to be when the current tax cuts end?

Don't know exactly. Try a google search or Publication 564 (2006), Mutual Fund Distributions and Tax Facts About Capital Gains and Losses from the IRS.

- Alec

 

[Martha]

Currently the rate on long-term capital gains is 15% for taxpayers in the 25% bracket or higher and is 5% for individuals in the 10% and 15% tax brackets. In 2008 through 2010, the 15% rate remains the same but the 5% rate drops to 0%. After 2010, the capital gain rates will return to the old 20% and 10% rates, and the five-year holding period rules and rates return.

Of course, Congress can do most anything it wants to change the the law.

 

[FIRE'd@51]

Although OP didn't specifically ask about corporate dividends, let me add that they are also taxed at long-term capital gains rates through 2010 per Martha, after which they will revert to ordinary income rates.

 

[Gearhead Jim]

Thanks to all for the info!