Big distribution by mutual fund company in Dec

I am hit with $20000 distribution by Fidelity. How do I pay tax on that. on W2 I don't pay estimated taxes my W2 takes care of my tax withholding but certainly can not take care of $5000 that will come as taxes on $20000.

Fortunately, I have my own C corp that gives me W2. Can I just deposit extra $5000 as withholding for last month of 2018 and include in my W2? Will that be legal?

Reply to
Anon
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As long as you have withheld and/or prepaid (by January 15) at least the same total amount of taxes for 2018 that you owed/paid in 2017, there should be no penalty for a year when you have an unexpectedly large income. Any additional tax will be due when you file your 2018 return.

Reply to
Stuart O. Bronstein

Y'ever heard of a 1040-ES? It'll be due by January 15th.

Reply to
lotax

But I never filed for quarterly estimated taxes so can i still make one large payment and file ES form?

Reply to
Anon

Yes.

Reply to
Stuart O. Bronstein

Since nobody has mentioned it: there is a small chance that even after making this payment, you may need to fill out form 2210 to completely avoid a penalty. This would be most likely if your total 2018 income is significantly lower than was the case in 2017.

On the form 2210, you would be able to show that although you made a large payment on 1/15/2019, it was to cover income that did not occur until the fourth period in 2018, thus you were not late in paying it.

Many people file first, then wait and see if there's a penalty before going through the complexity of form 2210.

Steve

Reply to
spope384

Last quarter of 2018 was not good for stock market. Why mutual fund company is paying in December huge distribution. I will guess the gains were in Q1 or Q2. I am thinking of getting rid off fidelity investment from my portfolio as it is a risk for naive investors.

Reply to
Anon

Fidelity isn't the only one.

It's pretty common for mutual funds to pay out capital gains distributions once a year, usually in December; they probably think they're giving us Xmas presents, but it often comes as a nasty surprise tax-wise. Dividend distributions tend to be more frequent, like quarterly.

Reply to
Barry Margolin

A regulated investment company (RIC) such as a mutual fund must distribute (pass-through) to its shareholders at least 90% of its net investment income. Net investment income excludes net capital gain (long-term gains over short term losses). A RIC will pay income tax like a corporation on its taxable income (taxable income excludes net capital gain). Obviously, this is a reason the RIC distributes the net investment income to its shareholders. However, if the RIC does not distribute at least 98.2% of its net capital gain then it is subject to a 4% federal excise tax. So... RICs distribute their net capital gain once a year.

Reply to
Alan

Right, and since they net out gains and losses over the year they won't know what their net gain is until the end of the year. If they distrubuted more often, they might end up distributing more than 100% which would be unfortunate. Would that be a return of capital?

Reply to
John Levine

I think most understand WHY mutual funds distribute their gains, I took it as questioning the timing.

There are also mutual funds that try to be more tax efficient, by minimizing trades. I'm not sure which Fidelity funds fall into this class, but index funds are both tax-efficient and also have low expenses (they don't need to pay for research).

I also got the huge hit from Contrafund this month.

Reply to
Barry Margolin

"A regulated investment company (RIC) such as a mutual fund must distribute (pass-through) [something] to its shareholders...," writes Alan.

I'm pretty mighty awfully sure that in this context, "distribute" and "pass-through" don't mean the same thing. "Distribute" would be to actually pay out, while "pass-through" would mean to send the **taxability** but maybe not the "money" of an owner's income to the owner.

A Regulated Investment Company ("RIC") is an artificial, non-intuitive, and really complicated beast, income-tax-wise, and has some things that are subject to "pass-through" taxation, and some that aren't. Waaay above my pay grade...

Reply to
lotax

Barry Margolin wrote in news: snipped-for-privacy@reader.eternal-september.org:

I think also if you have divs and CG reinvested in your account be mindful of the wash sales rule if you decide to sell.

scott s. ..

Reply to
scott s.

I looked up the instructions for form 1120-RIC and the word "distribution" is in fact used in this way.

Steve

Reply to
spope384

And, I assure you, "pass-through" is not...

Reply to
lotax

You're right; the phrase pass-through does not occur in the 1120-RIC instructions, except in unrelated contexts.

Steve

Reply to
spope384

Unless you're trying to distinguish between distributing the interest/gains in cash and automatically reinvesting, I'm pretty sure you're wrong. I've been investing in mutual funds for about 35 years, and I've never heard of a situation where they don't actually distribute the earnings.

If dividend reinvestment is what you're talking about, it's just a convenience, it's treated identically to you receiving the cash and on the same day making an equivalent purchase. And on statements it shows up like that, you see separate transactions for the dividend and purchase. It also offers some savings, there's generally no transaction fees.

Reply to
Barry Margolin

The only thing I wrote was that "distribution" and "pass-through taxation" are two different things. I hope you'll agree with that. I didn't say a thing, at least I didn't intend to say anything, about the income taxation of a RIC investment.

Reply to
lotax

You were right. They are different. While once in a while a distribution may amount to the same amount of money as a pass-through, they are different concepts, and that has to be understood or things could go horribly wrong.

Reply to
Stuart O. Bronstein

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