 |
INVESTING WITH US
Overview | Open
An Account | Shareholder Services | FAQ
2011
Tax Year 
The following
information may be helpful to you for reporting transactions in your mutual
funds on your tax return. The tax forms we send to you include details that
are being reported to the IRS. As always, please consult your accountant,
tax advisor or tax professional for detailed information applicable to your
unique situation. You may also find IRS Publication 550, “Investment Income and Expenses,”
helpful in your tax planning. It can be found at www.IRS.gov.
Back
to Mutual Fund Tax Center
Form
1099-DIV Questions and Answers
IRS Tax Form 1099-DIV reports taxable dividends and short-term and long-term
capital gains distributed by each mutual fund you own. Short-term capital
gains distributions, when paid, are reported as ordinary dividends on this
Form. Form 1099-DIV may also include federal income tax withheld and foreign
taxes paid. For more information about the Foreign Tax Credit, click
here.
What information
is reported on Form 1099-DIV?
Form 1099-DIV reports ordinary dividends and capital gains distributions
of $10 or more (unless there was backup withholding). The form includes:
· The names of funds that paid dividend or capital gains distributions
· The funds' federal identification numbers
· Total ordinary dividends
· Qualified dividends
· Total capital gains distributions
· Nontaxable distributions
· Federal income tax withheld
· Foreign tax paid
If I
reinvest distributions to purchase more shares of my fund, do I owe taxes
on those distributions?
Yes. You must pay taxes on mutual fund distributions regardless of whether
you receive them in cash or reinvest them in additional shares of your
fund. Reinvested distributions are included on Form 1099-DIV.
Why aren't
short- and long-term capital gains distributions listed separately on
the 1099-DIV?
Short-term capital gains are required to be reported to shareholders as
ordinary income. Short-term capital gains distributions, along with ordinary
dividends, are reported in Box 1a. Long-term capital gains distributions
are reported in Box 2a.
What are
Qualified Dividends?
Mutual fund distributions that are attributable to dividends received
on qualified stock (therefore “qualified dividends”) are taxed at a maximum
rate of 15% instead of the higher ordinary income tax rates. Qualified
Dividend Income paid to taxpayers in brackets below 25% is taxed at a
0% rate. Box 1b on the 1099-DIV shows the portion of the amount in Box
1a that qualifies for the reduced rate. Please refer to the instructions
in your IRS Form 1040 for information about reporting qualified dividends,
including holding period requirements. Enter the total qualified dividends
from all your investments on Line 9b of Form 1040.
What is
Foreign Tax Paid?
When dividends include income from non-U.S. securities, the fund may pass
the foreign tax paid on these investments through to its shareholders in box 6
on Form 1099-DIV. Shareholders may either claim a foreign tax credit on their returns or take
an itemized deduction. This amount has been added to your ordinary dividends. For more
information about Foreign Tax Paid, click here.
Transactions and/or distributions for each specific mutual fund, not
simply “The Oakmark Funds,” must be reported on Form 1040, Schedules B
and D. This applies to both Forms 1099-DIV and 1099-B.
Form
1099-B Questions and Answers
IRS Tax Form 1099-B reports all sales and/or exchanges of mutual fund
shares. If you realize capital gains or losses from the sale (including
an exchange of mutual fund shares), you must report them on your tax return.
What
information is reported on Form 1099-B?
Form 1099-B reports the gross proceeds of sales (redemptions) of mutual
fund shares, excluding retirement accounts. In addition, 1099-B reports
exchanges between funds and transfers from non-retirement accounts to
retirement accounts. The form includes the name of the fund sold, a description
of the sale (such as exchange between funds), date of the sale, share
price, number of shares sold, gross proceeds and any federal income taxes
withheld.
Cost Basis Regulations
Important new cost basis regulations went into effect January 1, 2012. The first cost basis reporting to the IRS
will be included on the 2012 Form 1099-B that will be mailed to you in February 2013. For more information, please visit
www.oakmarkcostbasis.com.
Do I need
to report a gain or loss if I simply exchange from one fund to another?
Yes. Because an exchange is the sale of one fund’s shares and the purchase
of another fund’s shares, you will receive a Form 1099-B indicating the
gross proceeds of the sale. You will not receive this form when selling
or exchanging shares in a retirement account, such as an IRA.
How can
I determine if I have a short- or long-term gain or loss?
A sale of shares held for one year or less results in a short-term gain
or loss. If you sold shares held for more than one year, a long-term capital
gain or loss is generated.
What tax
rates apply to short-term and long-term capital gains?
Short-term gains are generally taxed at ordinary income tax rates, which
range from 10% to 35%, depending on your adjusted gross income. Long-term
gains are generally taxed at a maximum rate of 15%. For investors in tax
brackets below 25%, long-term gains are taxed at a 0% rate.
Can I
calculate gains/losses using Form 1099-B alone?
No. This form does not provide sufficient information to calculate a gain
or loss on the sale or exchange of shares. Account owners will need the
original cost per share (cost basis) and date of each purchase to determine
gain or loss information. You will find this information on your confirmation
statements.
How do
I calculate my cost basis when I sell or exchange shares?
When you sell or exchange shares from a mutual fund, you must calculate
and report a gain or loss on Form 1040, Schedule D. In general, your cost
basis (the original cost of the investment plus all reinvested distributions)
is subtracted from your sales proceeds to determine any capital gain or
loss. There are several ways in which you can calculate your cost basis
and, therefore, your potential tax liability:
- Average
Cost
Single-Category
Method: This calculation is used by the Oakmark Funds to report
cost basis to shareholders and is simply the average cost per share
of all the shares you bought prior to the sale.
Double-Category
Method: Separates your short-term and long-term shares into two
groups before calculating an average cost per share for each group.
Once
you elect to use either average-cost method to calculate gain or losses
for any fund, you must continue to use this method for the life of
that fund investment.
- First
In, First Out (FIFO)
Assumes
you sold your oldest shares first. Using this method, if you sell your
entire investment over time, your shares would be sold in the order
in which they were bought. This method is relatively simple; however,
if your fund's share price has risen substantially since your initial
investment, you may realize a large gain. The IRS assumes FIFO has been
applied to determine cost unless another method has been specified on
your return.
- Specific-Identification
Under this
method, you can specify which shares you want to sell at the time of
the sale, and your cost basis is the original purchase price of those
shares.
Don’t forget
to include reinvested distributions in your calculations, as these are
purchases of additional shares and therefore part of your cost basis.
Other
tax forms you may receive regarding your mutual fund investments
Form 1099-Q
IRS Form 1099-Q reports the gross distributions, including
asset transfers from Education Savings Accounts
(ESAs). Please see IRS Publication 970, “Tax Benefits for Education,” for information about how to
calculate the earnings portion of the gross distribution.
Form 1099-R
IRS Tax Form 1099-R reports all distributions from retirement accounts
such as IRAs, 401(k) plans and annuities. It lists total distributions,
taxable amounts and any federal taxes withheld.
Form 5498
IRS Form 5498 reports contribution information and fair-market values
for Traditional IRAs, Roth IRAs, Education Savings Accounts (ESAs), Simplified
Employee Pension (SEP) IRAs and Savings Incentive Match Plan for Employees
(SIMPLE) IRAs. This form will not be sent until May 2012, after the
close of the April 17, 2012 contribution deadline for 2011 contributions.
It is for your records only and does not need to be filed with your tax
return.
|
|
|
