John M. Hoffman & Associates CPAs

Frequently Asked Questions

Capital Gains and Losses

"What about capital gain dividends on mutual funds I own?"

As you know, a mutual fund passes through by way of dividends the net income that the fund earns in a year (in simple terms). One of the advantages of this process is that the expenses within the mutual fund are deducted from the fund before the payment of the dividends. This is advantageous because you are essentially getting to deduct these expenses of managing you money off the top. Back to the capital gain; if a fund has capital gains it distributes those to its shareholders in the form of a capital gain dividend. Those capital gain dividends are taxed to you the shareholder like all other long term capital gains. Short term capital gains within mutual funds are distributed to shareholders as ordinary non-qualified dividends.