jwp@uwmacc.UUCP (Jeffrey W Percival) (12/10/85)
If I buy into a loaded mutual fund, can I deduct the amount of each payment that pays the load? (Without going to jail, that is!) Oh yes, and are stockbroker's commissions deductible? -- Jeff Percival ...!uwvax!uwmacc!jwp
bill@utastro.UUCP (William H. Jefferys) (12/10/85)
In article <1777@uwmacc.UUCP>, jwp@uwmacc.UUCP (Jeffrey W Percival) writes: > If I buy into a loaded mutual fund, can I deduct the > amount of each payment that pays the load? > > (Without going to jail, that is!) NO. > > Oh yes, and are stockbroker's commissions deductible? NO. Here is how commissions/loads affect your taxes. When you *sell* the securities, compute your net profit by subtracting the total you paid for them (including commissions) from the net amount you received upon sale (as affected by any commissions upon sale). If this is greater than zero, you have a capital gain and must pay tax on it. If it is less than zero, you have a capital loss and may deduct it in the year of sale (up to a maximum of, I think, $3000). If your loss is greater than the maximum, you can carry the loss forward to later tax years. See a good tax guide for details (e.g., Lasker's) Sometimes the seller will pay a transfer tax. Under present law, the transfer tax is deductible, but if you deduct it you cannot also use it as a reduction of the net amount you receive on sale.
wildbill@ucbvax.BERKELEY.EDU (William J. Laubenheimer) (12/11/85)
Seems this question crops up now and again. One more time...
Current tax laws recognize a class of investment which is commonly
called a "capital investment". The distinguishing feature of this
investment is that you exchange your money for an object of value.
This can be a share of stock or in a mutual fund, precious metals or
other commodities, or even fine art or antiques. The formula by which
you figure taxes on such an investment is really quite simple: you start
by computing how much your investment cost you, and subtract that figure
from the amount you got when you sold it. The difference is a capital
gain if it is positive, or a capital loss if it is negative.
That was easy. Now let's match it up with the technical details that the
IRS expects you to be able to handle. If you put your taxes in charge of
a competent accountant or tax preparer, that person will tell you what
information is needed to do the computations and, if you ask, explain all
the little figures. If you prefer to do your own, here is the information
you will need.
The figure which represents the cost of a capital investment to the IRS
is known in their documentation as the "cost basis" of the investment.
What this represents is the cost to you of acquiring your position in
the investment, and includes the additional costs associated with purchasing
and disposing of the investment. In the case of a mutual fund, this cost
is represented by the load and is reflected in the difference in the
price at which a mutual fund will allow you to purchase shares and the
the price at which the fund will redeem your shares. For a stock purchase,
the commission you pay when you buy the stock, *and also the commission
you pay when you sell it*, are included in the cost basis. Thus, if you
buy 100 shares of a stock selling at 12 and pay a $60 commission, then
sell it later at 14 and pay a $70 commission, your cost basis is $1200
(price paid for stock) + $60 + $70 (commissions) = $1330. Since the
value of your stock was $1400 when you sold it, you have a capital gain
of $70.
The summary, then, is that mutual fund loads and stock commissions are
treated as part of the cost of acquiring a capital investment and affect
the cost basis of the investment (reported on Schedule D, capital gains
and losses) rather than being deducted.
Mutual funds have a few other tricks associated with their income. Usually,
a fund will schedule an occasional distribution of assets to their
shareholders in order to adjust the price of the fund. This is typically
done in the early part of the year. This represents income from the fund,
and may come from a number of sources depending on what the fund was investing
in during the year. The income is reported to you by the fund, and is
proken down into relevant categories: dividends subject to exclusion,
dividends not subject to exclusion, and long- and short-term capital gains.
The dividends are reported on Schedule B, dividend and interest income,
under the appropriate column (dividends not subject to exclusion are
reported just like interest income), and the capital gains are reported
on Schedule D (except there are a few catches there -- make sure you have
a long form and read the applicable sections). Stocks are simpler: dividends
go on Schedule B, and are subject to exclusion; you file a Schedule D
when you sell the stock. (Hang on to that purchase order -- you'll need
it when you sell!!!)
Bill Laubenheimer
----------------------------------------UC-Berkeley Computer Science
...Killjoy went that-a-way---> ucbvax!wildbillrws@gypsy.UUCP (12/12/85)
As far as I know, the "load" and the stockbroker's commisions are used to compute the effective price of the security you bought, and thereby reduce your capital gains. You can't deduct them on the present year's taxes.