scrabbler1
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Nov 20, 2009
- Messages
- 6,703
I just received a large short-term cap gains distribution in the Big Bond Fund (BBF) I use to generate the dividends to fund most of my ER.
As you probably know, a STCG distribution is treated like a dividend and taxed as ordinary income. So this dividend which represents 3% of the BBF's value (quite large for a bond fund cap gains distribution) will result in some extra income taxes, both state and federal, despite my being in the 15% federal bracket.
This BBF had never paid a cap gains distribution this large before, not even late last year when the BBF's value grew a lot. And it had never paid a cap gains distribution midyear before although I knew June was its midyear month for paying them. I was a bit surprised that the cap gains distribution was not a long-term one, however. That would have resulted in a lower income tax bill. The BBF's manager, I suppose, is not concerned with the tax bills of its investors.
I reinvested the cap gains distribution in additional shares even while I take as cash the regular monthly dividends, so I will need to use other money sources to pay the taxes. Some of the added taxes I will pay in the 3rd quarter estimated taxes, some in the 4th quarter, and the rest next April. I estimate that it will take me about 4 years to recover these taxes through the added dividends I will receive from the extra shares I got from this. But at the same time I received a whole bunch of new shares for about 21% of the BBF's NAV, a good deal.
As you probably know, a STCG distribution is treated like a dividend and taxed as ordinary income. So this dividend which represents 3% of the BBF's value (quite large for a bond fund cap gains distribution) will result in some extra income taxes, both state and federal, despite my being in the 15% federal bracket.
This BBF had never paid a cap gains distribution this large before, not even late last year when the BBF's value grew a lot. And it had never paid a cap gains distribution midyear before although I knew June was its midyear month for paying them. I was a bit surprised that the cap gains distribution was not a long-term one, however. That would have resulted in a lower income tax bill. The BBF's manager, I suppose, is not concerned with the tax bills of its investors.
I reinvested the cap gains distribution in additional shares even while I take as cash the regular monthly dividends, so I will need to use other money sources to pay the taxes. Some of the added taxes I will pay in the 3rd quarter estimated taxes, some in the 4th quarter, and the rest next April. I estimate that it will take me about 4 years to recover these taxes through the added dividends I will receive from the extra shares I got from this. But at the same time I received a whole bunch of new shares for about 21% of the BBF's NAV, a good deal.