
INVESTING WITH US
Overview | Open An Account | Shareholder Services | FAQ

Shareholder Tax Information
2007 Tax Year
Back to Mutual Fund Tax Center
Download in PDF format
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 or tax advisor for detailed information applicable
to your unique situation. You may also find IRS Publication 564, “Mutual Fund Distributions,” helpful
in your tax planning. It can be found at
www.IRS.gov.
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 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 the lower tax brackets is taxed at
a maximum of 5%. 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 Form1040 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 or 1040A.
What is Foreign
Tax Paid?
When dividends include income from non U.S. securities, the Fund can pass the foreign taxes paid on
these investments through to its shareholders on the 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 the Foreign Tax Credit Worksheet, 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 or 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.
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 for selling or exchanging shares from 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 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 the lower tax brackets, long-term gains are generally taxed at a maximum rate
of 5%.
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
confirm 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:
- 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.
- Average
Cost-Single-Category Method: this calculation is simply the average
cost per share of all the shares you bought prior to the sale and is used by the Oakmark Funds
to report cost basis to shareholders. 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.
- 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 distributions and earnings on distributions, including asset
transfers and fair market values, for Education Savings Accounts (ESAs).
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, Simplified Employee Pension (SEP) IRAs, and
Savings Incentive Match Plan for Employees (SIMPLE) IRAs. This form is not sent until
May 2008, after the close of the April 15, 2008 contribution deadline for 2007 contributions.
It is for your records only and does not need to be filed with your tax return.
|