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Taxes and FAQs

Overview Mutual Fund Tax Forms Taxes and FAQs
How does a mutual fund affect my taxes?

Unless a fund is held in an IRA or other tax-advantaged account, any investment returns are usually taxed each year. Taxable returns may be generated by the fund itself or by you as a shareholder:

  • Mutual fund distributions - Any interest, dividends or capital gains earned by a fund's holdings must be distributed to shareholders at least once a year. In taxable accounts, those distributions are subject to taxes even if you reinvest them in more fund shares. To assist you with tax preparation, funds send annual reports summarizing their distributions.
  • Shareholder transactions - If you sell fund shares for more or less than you originally paid, you incur a capital gain or loss that may affect your overall tax bill.
What are interest income, dividends and capital gains - and how are they taxed?
Type of return Description Tax treatment
Interest income Interest payments from bond or money market fund holdings Taxed as ordinary income at rates as high as 35%
Stock dividends Paid by companies that share profits with stockholders Taxed at 0% or 15% through 2012 (for qualified dividends)*
Short-term capital gains Profits on the sale of investments held for one year or less Taxed as ordinary income at rates as high as 35%
Long-term capital gains Profits on the sale of investments held longer than one year Taxed at 0% or 15% through 2012*

* Tax rates are 0% for investors in the two lowest tax brackets and 15% for all others.

What is a capital loss?

Generally, a capital loss occurs when an investment is sold for less than its initial purchase price.

What is the difference between "short-term" and "long-term" capital gains and losses?

Gains or losses on investments held for one year or less are considered short-term. Gains or losses on investments held more than one year are considered long-term.

Capital gains distributed by mutual funds are generally considered short- or long-term based on how long the fund held its underlying securities, not how long you've owned fund shares. You must determine your own holding period when selling fund shares at a profit or loss.

What is the difference between a "realized" and "unrealized" capital gain?

Realized capital gains can occur when an investment is actually sold at a profit. Unrealized capital gains occur when an investment appreciates in value but hasn't yet been sold.

Realized gains may be taxable unless investments are held in a tax-advantaged account, such as an IRA or 401(k). Unrealized gains do not incur taxes.

When do I have to pay federal taxes on my investment earnings?

It depends on what type of account you own. Here are some examples:

  • Taxable account - In most cases, taxes apply to the year in which returns are earned. Taxes must usually be paid by the deadline for filing your income tax return.
  • Tax-deferred accounts - With Traditional IRAs, 401(k)s and annuities, investment earnings aren't taxed until withdrawn. Early withdrawals before age 59½ usually incur an additional 10% federal penalty tax.
  • Tax-free accounts - Investment earnings in Roth IRAs and some education accounts are not taxed as long as certain conditions are met. Non-qualified withdrawals usually incur income taxes, along with a 10% federal penalty tax.

A financial professional can tell you more about these accounts, including which may be right for your situation.

Is there anything I can do to offset a taxable gain?

You could realize a capital loss to offset some or all of the gain. If losses exceed gains, up to $3,000 can be deducted from ordinary income on your tax return - or up to $1,500 if married filing separately. Any remaining losses can be carried forward to future years.

Important: Consult your advisor to be sure that selling a security at a loss is consistent with your overall investment plan. A financial or tax professional can also inform you about the rules governing investment losses.

How are capital gains and losses calculated?
  • Mutual fund distributions - Short- and long-term capital gain distributions represent a fund's net realized gains, minus any realized losses.
  • Gains or losses from shareholder transactions - If you sell fund shares during the year, you'll receive a report listing the amount of the proceeds as well as the sales price. You can then use your initial purchase price to calculate the gain or loss, based on one of four IRS-approved methods. Please consult your financial professional or tax advisor for more information.
What forms will I receive to help me prepare my tax return?
  • Form 1099-DIV reports dividend and capital gain distributions from your mutual funds. Dividends less than $10 for the year will not produce a 1099-DIV.
  • Form 1099-B reports proceeds from your sale or exchange of fund shares.
  • Form 1099-INT reports interest income from your mutual funds.

J.P. Morgan combines these forms into one convenient report, which is mailed by February 15 for the prior year’s activities. Depending on your circumstances, you may also receive other tax forms. Click here for a complete list.

What is the Cost Basis Method on my 1099-B?

Your IRS Form 1099-B incorporates the mandatory cost basis reporting rules that took effect after January 1, 2012. These rules require us to provide you with the cost basis for shares acquired and sold on or after January 1, 2012.

Cost basis is generally the dollar amount you paid for the investment shares plus added expenses, such as commissions. You need to know your cost basis so you can determine whether you had a gain or loss on a sale to report on Form 8949

Method Description
Average Cost (ACST) Acquisition prices of shares are averaged to determine the cost per share
First in, first out (FIFO) Shares acquired first are sold first
Last in first out (LIFO) Shares acquired last are sold first
Lowest cost, first out (LOFO) Lowest cost shares are sold first
Highest in, first out (HIFO) Highest cost shares are sold first
Loss/gain utilization (LGUT) Shares sold are evaluated to maximize losses and minimize gains, based on holding period
Specific lot identification (SLID) Specific shares are selected to sell at time of sale

Click here for the 2013 Cost Basis Brochure.

When do J.P. Morgan Funds make distributions?

Bond and money market funds distribute income on a monthly basis. For an estimated schedule of dividend and capital gain distributions, please click the appropriate links below:

2013 dividend and capital gain schedule

First quarter         Second quarter

Third quarter        Fourth quarter

 

The information above is not intended to provide and should not be relied on for accounting, legal and tax advice or investment recommendations. The views and strategies described may not be suitable to all readers. Please contact your financial professional or tax advisor for additional information.

Asset allocation/diversification does not guarantee investment returns and does not eliminate the risk of loss.

IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.