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Advice on Dividends and Capital Gains

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Q: AMAGX didnt pay its capital gains or dividends in December this year, What happened?
AMAGX Paid its dividends and capital gains in december 31st last year, and this year it hasn’t paid anything. IT says in the prospectus that they are paid in decemeber and May and last year they only paid in december, its a fully rated 5star fund with great results over the past 7 years with great average gains!

A: They did pay. They paid 0%. The fund lost 32% of their money this year (thru November) There are no gains to pay out.

What they did over the last seven years is not relevant. The fund’s manager may have quit and they replaced him with somebody else. You can’t invest in the past. If you could, we would all be rich. So what if Morningstar gave it five stars. Morningstar isn’t going to reimburse you for your losses.

Q: Do you think low taxes on dividends and capital gains can help growth in the US production and job market?
Tax rates on both dividends and capital gains have been cut down to historical lows. The maximum tax rate on both dividends and capital gains is now set at 15%. Policy makers agreed to such a reduction hoping to see a faster economic recovery and further job growth. These policy makers would like to get your expert opinion on this issue

Do you think low taxes on dividends and capital gains can help growth in the US production and job market?

A: The dividend and capital gain tax cuts have not helped the economy and have not created jobs.

They were a gift from the Republican party to their primary constituents.

Q: Do lower taxes on dividends and capital gains help hasten an economic recovery or growth in the US production?
Tax rates on both dividends and capital gains have been cut down to historical lows. Maximum tax rate on both dividends and capital gains is now set at 15%. Policy makers agreed to such a reduction hoping to see faster economic recovery, and further job growth.

A: This approach is based on an economic theory called “supply side economics.” It was advanced by the Reagan administration in the 1980s.

In theory, lowering taxes on dividends and capital gains will encourage investors to make the type of investments that will create more jobs.

In practice, this theory has been largely debunked. As a result, the direct and indirect tax burden for the middle class has increased. Wages have stagnated while expenses have skyrocketed. The poor and middle class have to pay a larger percentage of their incomes for essentials. The wealthy investor class needs a much smaller portion of their incomes for essentials.

“Indirect taxes” are the result of shrinking tax revenue. When capital gains taxes are cut, the wealthy investor class gets a tax cut, but the federal government has less money to spend on the things we all take for granted. What often gets cut is spending on roads, highways, and bridges, federal aid for college students, federal education spending, and spending for Medicaid, etc. So, these costs get passed on down to the state and local level, and the tax burden increases on the middle class. Their property taxes have to be raised and meanwhile, they have to spend more money for college tuition, health care, and other essentials because the federal government is paying less for these things.

Q: How are the fees for a mutual fund paid? Are they removed from your dividends and capital gains?
I’m not talking about loads, just the fees that comprise the expense ratio.
If i have a fund with 1% fees, will I be billed for these fees directly and then pay by check, or are they taken out of the dividends and capital gains before they are distributed, or are they actually part of the NAV calculation?
How can it come out of account balances? They aren’t going to force you to sell shares just so you can cover their fees are they?

A: Management fees are factored daily into the NAV or Net Asset Value of your fund. The NAV is the price per share to buy or to sell a mutual fund. If there were no fees, for example, the NAV would a bit higher that it is and simply reflect the actual value of the stocks in the portfolio. But because ALL mutual funds have fees the NAV is always a bit lower. The difference between the NAV and the actual value of the portfolio is the profit for the fund company. The average difference between the NAV and the actual portfolio in most funds range between .5% to around 1.5%

If there is a load in your fund you do not buy at the NAV but at the Maximum Offering Price (MOP) Which is the NAV plus the sales charge. When you sell a load fund you will sell it at the NAV.

Please read my profile. If you would like to chat about this or anything else please send me an email. Great question by the way!

Q: After selling some mutual funds in my ira in October do i get the dividends and capital gains in december?
I believe the funds pay their dividends and capital gains in December, but since I sold the mutual funds in October, will I still get something in December? thanks

A: Hello,

No, you will not get any dividends or capital that are distributed in December. It is important to understand that capital gains and or dividends are primarily a return of capital. It is your own money anyway. There is nothing special about a fund distributing dividends or capital gains. It is not like the funds are giving you something extra.

I hope this helps.

Michael A. Weiss, CFA
The Editor
The Mutual Fund Investor

http://www.mutualfundinvestor.net

Q: If mutual funds distribute all of their capital gains and dividends, why does the NAV increase over time?
If mutual funds use most of the capital gains and dividends of their portfolios to make distributions to investors, why does the fund’s net asset value (NAV) increase over time? It seems that distributing these gains would cause the NAV to remain steady, or to decrease.

A: From unrealized capital gains. They only have to distribute the gains that are realized.

This is one reason with mutual funds you might want to pay attention to the turnover rate. The more a fund buys and sells, even to the point of being called “churning” that generates more fees for the company, not you, will affect how much in capital gains they distribute.

That is one aspect people are seeing now. Most funds have large losses this year but because of the trading they have also realized capital gains along the way. So you end up paying taxes on distributed gains even though overall you have losses in the fund.

Q: do you pay a load on reinvested dividends and capital gains?
If the fund has a load of 5% …. I will pay that load when I buy shares. But do I pay the load on reinvested dividend and capital gains purchases?

A: No, the load is on new money invested.

Q: If Congress increased the personal tax rate on dividends and capital gains but simultaneously reduced the rate
on corporate income, what effect would this have on the average companies capital structure?

A: If Congress reduced the tax rate on corporate income and increased the personal tax rate on dividends and capital gains, it would increase companies net after tax income, since they would be paying less in taxes. Increasing or decreasing the personal tax rate on dividends and capital gains has no effect on companies, as they don’t get any tax benefit from the dividends that they pay to shareholders.

Q: What is the tax rate at which the qualified dividends and capital gains were taxed? (i.e. 0% or 15%)?
What is the tax rate at which the qualified dividends and capital gains were taxed? (i.e. 0% or 15%)

On Form 1099-DIV:
1a Total ordinary dividends = 780
1b Qualified dividends = 780
2a Total capital gain distribution = 135

Addition info from Form 1040 (I don’t know if you need them):
Taxable income = 16965
Tax = 2010

Thanks!

A: It would be 0%, take a look here:

Long term & short term capital gain and loss

http://www.maxi-pedia.com/long+term+short+term+capital+gain+and+loss

Capital gains tax rates

http://www.maxi-pedia.com/capital+gains+tax+rates

Just on the side, watch out for the alternate minumum tax.

Q: at 64 how does Social Security earnings reduced if income from dividends and capital gains?
I intend to collect Social Security in In September 2009, when I will be 64.
I have income from dividends and capital gains only.
Does this income affect my social security Payments? i.e. reduction in Social Security payments due to other income
Thank you

A: No only earned income counts against you.

Q: Do you think lower taxes on dividends and capital gains can help further growth in the united states?

A: No@

Q: The current tax rate on Capital Gains and dividends is 15%. Do I still need to pay state tax on top of that ?
Say. I make $100 on Long term Capital gains and pay $15 for federal tax. Do I need to still pay state and local tax on $100 ?

A: Yes, the state wants its cut. Sorry.

Q: Do you think lower taxes on dividends and capital gains can help hasten an economic recovery?

A: Only when the government is not running a deficit. The government must lower spending as well as taxes. This is exceedingly difficult because most people vote for whomever gives them handouts. Very few people vote for someone who restricts handouts and tries to run a tight ship. They don’t see the forest for the trees. “Live for today, the heck with tomorrow”. These same people run up their credit cards and declare bankruptcy.

That being said, in the short term, yes, a capital gain and dividend tax break can stimulate the economy because it puts more money in the hands of the people which is either spent on products or invested. Both help the economy. However, a huge government deficit will eventually squelch that benefit.

Q: Is the Obamacare subsidy based upon income that includes IRA withdrawals, capital gains, interest, dividends,?
…. etc?

Or is it based just upon the income you receive from your job?

My point is this: Can you get penalized by Obamacare for making withdrawals from your IRA and for interest, dividends, and capital gains income?

A: Yes. Your income for Obamacare purposes includes withdrawals from IRA and 401k plans,interest, dividends, and capital gains. But, money put into your IRA and 401k plans is subtracted from your earned income for Obamacare purposes.

For Obamacare purposes your income is the amount of your ADJUSTED GROSS INCOME on your 1040 or 1040a. (Technically it is your modified adjusted gross income but from what I could read the modification only affected people who lived/worked outside of the United States.) So, if get out your income tax for last year and you can see what will be included and what will be deducted.

To take full advantage of the Obamacare subsidies I am now saving as much money as I can in non-taxable accounts. Then on January 1, 2014 I will live off that savings and put as much money as I can into tax-deferred accounts.

Q: Why do we give tax breaks to income from capital gains and dividends but not interest on savings?
I want to know if there is an theoretical economic rational, not about the effects of big money on out politics.

A: Capital gains are gotten by investment?

If I am a company, and need raise money, so I sell some stock to you, and I take that money and buy a plant or hire some people, then yes, you will have helped invest in the economy. But now you just own some of the company and you are a leech, just getting paid for a previous investment. If someone else buys the stock from you, and you get a return, that return is no longer related to new investment and adds nothing to GDP. Most stock in the stock market and hence most gains, have nothing to do with real investment.

So, I don’t think there is a good theoretical economic rational. If you wanted to stimulate investment, you could have an investment tax credit, or even an employment tax credit. Or, perhaps you could have tax breaks for new stock issues.

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