Tax: Dividends and Distributions: How do these dates apply to mutual fund distributions?
Investments made within a mutual fund pay dividends and earn capital gains. Mutual funds declare dividends and capital gain distributions at certain times during the year. Dividend distributions (income distributions) are generally paid quarterly, capital gains distributions once a year usually at year end. These distributions are taxable. Unlike dividends from individual securities which are taxed in the year dividends are paid, mutual fund distributions declared as payable to shareholders of record in October, November or December and paid in January of the following year are taxable to shareholders based on the record date, not the payment date. Depending upon the time you purchase or sell a mutual fund you may receive a distribution of dividends and/or gains associated with those shares.
Refer to IRS Publication 564, Mutual Fund Distributions, Publication 550, Investment Income and Expenses, and consult your tax advisor for guidance in this area.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax: Dividends and Distributions: Tax Treatment of Money Market Dividends
Interest dividends received from money market mutual funds are considered taxable nonqualified dividends. Money market funds are a type of mutual fund that tries to increase current income available to shareholders by buying short-term market investments not eligible for reduced tax rates.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax: Dividends and Distributions: How are qualified and nonqualified dividends reported on your Form 1099?
Qualified dividends are included in total ordinary dividends. Dividends that MAY be qualified (eligible for a lower rates) are reported in a separate box on the Form 1099-DIV. IB does not determine if a customer meets the minimum holding period requirement for the lower rates to apply. Nonqualified dividends including taxable interest dividends, money market fund dividends and short-term capital gains paid from a mutual fund, are reported as ordinary dividends. Refer to IRS Publication 550 and consult your tax advisor for proper reporting.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Dividends and Distributions: Why are dividends from my money market funds not reported as interest?
Interest amounts you receive from money market funds is considered a distribution and is reported as dividend income on Form 1099-DIV. Money market funds are a type of mutual fund and should not be confused with bank money market accounts that pay interest reported on Form 1099-INT.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Dividends and Distributions: Does IB offer an annual Dividend Statement?
Yes. For all customers IB provides a Dividend Report which shows account detail for all dividends, and payments in lieu of dividends, as well as withholding on these amounts.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax reporting: Interest from Money Market Funds
Interest amounts you receive from money market funds are considered dividends and are reported on Form 1099-DIV. Money market funds are a type of mutual fund and should not be confused with bank money market accounts that pay interest reported on Form 1099-INT.
Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.
Tax Reporting: Municipal Bond Interest
Municipal Bonds (Munis) are interest-bearing debt obligations issued by a state or local municipality. In general, interest paid on municipal issues is exempt from federal taxes and may also be exempt from state and local taxes in the state of issuance. Form 1099-INT reports tax-exempt interest from municipal bonds. Tax-exempt interest from private activity bonds, taxable for purposes of the Alternative Minimum Tax (AMT), is also reported on Form 1099-INT. If you own shares in a municipal bond fund, nontaxability applies only to dividend distributions (capital gain distributions are always taxable). For New York residents, municipal bond interest is also reported to New York State.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax Reporting: Tax-exempt Interest Dividends from Mutual Funds
Tax-exempt interest dividends from mutual funds is reported on Form 1099-INT (box 8).
Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.
Tax Reporting: Original Issue Discount (OID)
Original issue discount (OID) is reported on Form 1099-OID. Although you may not have received a cash payment from the obligation during the year, if the obligation was originally issued at a discount, IBKR is required to report a portion of that OID each year it is held in your account. Refer to IRS Publication 550, Investment Income and Expenses, for information on how to report OID and Publication 1212, Guide to Original Issue Discount (OID) Instruments, to calculate the correct amount of OID to report on your tax return. Consult your tax advisor for further guidance.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax: Interest Income: Original Issue Discount
Original issue discount (OID) is a form of interest on a debt instrument such as a bond or note issued at less than its face amount. The discount is considered additional interest income. A debt instrument generally has OID when the instrument is issued for a price less than its stated redemption price at maturity. OID is the difference between the stated redemption price at maturity and the issue price, and is amortized over the life of the security, recognizing a portion of the discount annually as taxable interest.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
