Important 1099 Tax Forms for Mutual Funds

Important 1099 Tax Forms for Mutual Funds: Do you know how distributions from mutual funds occur? Usually, distributions from mutual funds occur for several reasons. Moreover, such distributions are subject to different tax rates. As we know, many mutual funds bundle most of the payouts into a single at the end of each year.

Getting confused? Don’t worry! We will let you know about the important 1099 tax forms that the mutual funds use. Furthermore, it’s your responsibility to report the transaction from a mutual fund on the tax return. we have provided a clear view about distribution and taxes, how the funds are taxed, and when to pay the dividends.

Important 1099 Tax Forms for Mutual Funds


Get Started for Free

1099 Distributions and taxes

In general, a mutual fund organization passes earnings and other payouts to the shareholders. The earnings and other payouts passed to the shareholder are considered as “Distribution”. It’s up to the mutual fund owner to report transactions on the tax return form and pay appropriate taxes of fund income. You need to pay taxes on mutual fund distributions when you hold shares in a taxable account. Additionally, you may pay tax whether the distributions are paid in the form of cash or reinvested in additional shares. Mutual fund organizations report the distributions paid to the shareholder on IRS Form 1099 DIV at the year-end.

How is each type of mutual fund 1099 income taxed?

Generally, ordinary income taxed at higher rates than qualified dividends and long-term capital gains. Given below table tells how each type of mutual fund income taxed:

Distribution Explanation How it is taxed?
Long-term capital gains Net gains obtained from the sale of shares for more than one year. Usually taxed at lower than the ordinary income tax rates.
Short-term capital gains Net gains obtained by the sale of shares for one year or less than one year. Short-term capital gains treated as ordinary income. Furthermore, taxable at ordinary income tax rates.
Qualified dividends Dividends earned from a common stock of the domestic or qualified foreign corporations. Taxed as long-term capital gains.
Non-qualified dividends Investment income earned in the form of funds from interest. Taxed at ordinary income tax rates.
Tax-exempt interest Interest earned on certain bonds and municipal bonds tax-exempted. Not taxable for federal income tax rates.
Taxable interest Interest earned on fixed-income securities. Taxed at ordinary income tax rates.

When are 1099 distributions paid?

The following table gives a clear view about issuing distributions:

Type of fund and distribution When to pay?
Equity and bond funds considered capital gains. Distributions paid at the end of the fiscal year and calendar year-end.
Money market bond funds distributed as income dividends. Distributions paid monthly.
Growth and income funds treated as income dividends. Distributions paid quarterly.
Growth funds considered as income dividends. Distributions issued after the fiscal year-end and at the calendar year-end.
Market discounts and dividends considered fixed-income funds. Distribute investment daily.

What happens if there is no distribution?

When a mutual fund doesn’t have capital gains, dividends, or other payouts in a tax year, then no distributions occur. Furthermore, there will be non-taxable distribution. A non-taxable distribution a payment made to shareholders the same as a dividend but the payment made from the organization’s capital. Moreover, the distribution not taxed until the investors sell the stock in the organization. Finally, the share-holder doesn’t receive the 1099 DIV Form from the mutual fund.

Different 1099 Tax forms used by mutual funds

Following are the two different 1099 tax forms used by the mutual fund to report the distribution paid to the shareholder throughout the year:

Form 1099 R

Use this tax form to report distributions made from pensions, retirement plans, profit-sharing plans, IRAs, etc. Additionally, the gross distributions, federal, local, and state tax withholdings also reported. Moreover, a rollover can report as distribution on Form 1099 R.

Form 1099 INT

Mutual funds use the 1099 INT Form to report dividends received from tax-exempt funds which remain exempt for federal tax purposes.

What are the Tax Strategies for Mutual Funds?

The tax strategies must follow by mutual fund organizations are:

Consider the timing of fund purchase and sale

Generally, selling a fund before the distribution results in more capital gain. Furthermore, selling shares after the distribution usually yields less gain or more loss. Also, when you’re considering to sell or purchase a share around the time of distribution, including the size of the dividend. Compare the size of the dividend relative to the size of the expected investment.

Consider the fund’s turnover rate

In general, a capital gain must report when a purchase or sale of a share occurs. Also, to accumulate more capital gains, fund the trade securities in and out frequently. With this activity, trading fees gradually increase.

Important 1099 Tax Forms for Mutual Funds: Finally, ready to file 1099 tax forms? Therefore, we provide e-filing service for 1099 INT, 1099 DIV, 1099 R tax forms in a convenient way. Start for free and pay when you submit tax returns with us.

Start 1099 Filing Now