| re: .0
>If I hold shares of a mutual fund which buys XYZ for $5 and sells it for $10
>less than a year later, that is considered a dividend for tax purposes.
No. Although it is still reported on a 1099-DIV form, it is considered a
capital gain. My vague recollection is that it is always considered a long-term
capital gain, regardless of how long the mutual fund held the underlying
stock. There's a line on Sch B where capital gains distributions are
subtracted out, and a separate line on the 1040 where they are put back in
(essentially moving them from the dividend category to the capital gain
category). If you file Sch D for other reasons, or if you could benefit from
the tax rate cap on capital gains, then there's a separate line on Sch D
for them.
A decent tax software program would just ask for the various boxes on the 1099-DIV
and put them all in the right places.
Gary
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| According to two of the mutual funds I own, "Dollars paid out,
representing both interest and dividends earned and short-term capital
gains, are categorized as Ordinary dividends and taxed as ordinary
income. Capital Gain dividends are paid out from gains on securities
sold by the fund which were held for more than a year and taxed as long-
term capital gains."
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