Tax Implications

What this video covers

• The Subchapter M requirement that a regulated investment company (RIC) must distribute at least 90% of both investment-company taxable income and qualifying tax-exempt interest to shareholders annually
• Why net long-term capital gain is excluded from the 90% distribution calculation and what happens to income the fund retains
• How capital gains distributions are always reported as long-term capital gains to the shareholder regardless of the investor's holding period or the fund's holding period
• Why reinvesting distributions in a taxable account does not defer taxes and when the IRS considers the distribution taxable
• The distinction between ordinary dividends and qualified dividends, and what determines which rate applies to each
• Why exchange-traded funds (ETFs) are more tax-efficient than mutual funds due to the in-kind creation and redemption mechanism
• What phantom gains (embedded tax liability) are and how an investor can owe taxes on gains that accrued before they purchased fund shares