Mutual Fund Tax Guide - Baird
Mutual Fund Tax Guide2019
ContentsPurposeWhat’s included in the Mutual Fund Tax Guide?Will the Guide help me file my tax return?Who should I contact for tax advice?Who should I contact if I have questions regarding my account?ImportantDatesTax Return Filing DeadlineIRA & CESA Contribution DeadlineRequired Tax Form Mail DatesDuplicate Tax Form RequestsTax FormsTaxable AccountsRetirement AccountsCoverdell Education Savings AccountTax TopicsBackup Withholding on Taxable AccountsCapital LossesWash SalesLong-Term Capital Gain DistributionsConversions & RecharacterizationsDividends from U.S. Government ObligationsDividends Received Deduction (DRD)Excess ContributionsForeign Tax CreditGift Tax ExclusionQualified Charitable ContributionsReturn of capitalSchedule K-12
PurposeWhat is included in the Mutual Fund Tax Guide?This guide provides information about the 2019 tax forms that you may receive this year.Will the Mutual Fund Tax Guide help me file my tax return?This guide may assist you in preparing your tax return but it is not intended to providespecific tax advice.Who should I contact for tax advice?Given the scope and complexity of tax laws, please consult your tax or financial advisorwho can provide advice based on your personal financial history and can best assist you inpreparing your tax return.Who should I contact if I have questions regarding my account?Please do not hesitate to contact one of our representatives at 1-866-442-2473 if you haveany questions, concerns, or need additional clarification regarding your account.3
Important DatesTax Return Filing DeadlineThe Federal Tax Return filing deadline for the 2019 tax year is April 15, 2020. Requestfor filing extensions are also due (if required).IRA & CESA Contribution DeadlineThe deadline to make contributions into your Traditional IRA, Roth IRA, and CoverdellEducation Savings Account (CESA) for the 2019 tax year coincide with the Federal TaxReturn filing deadline of April 15, 2020.Required Tax Form Mail DatesFormDate1099-Q, 1099-R, 592-BJanuary 31, 20201099-B, 1099-DIV, 1099-INTFebruary 18, 20201042-SMarch 16, 20205498-ESAApril 30, 20205498May 31, 2020Duplicate Tax Form RequestsPlease allow 5 -7 business days for theoriginal tax forms to arrive to your addressbefore requesting a duplicate copy. Pleasedo not hesitate to contact one of ourrepresentatives if you have any questions,concerns, or need additional clarificationregarding your account.4
Tax FormsType of Account/Tax FormPageTaxable Accounts6-14Form 1099-B6-9Form 1099-DIV10-12Form 1099-INT13Form 592-B14Retirement Accounts15-20Form 1099-R15-16Form 549817-19Coverdell Education Savings Account (CESA)20-21Form 1099-Q20Form 5498-ESA21Foreign AccountsForm 1042-S22-2322-23
1099-B Frequently Asked QuestionsGeneral reportingWhat does Form 1099-B report?Form 1099-B reports redemptions or exchanges from a non-retirement or non-moneymarket account. Gain/Loss information is provided for covered shares.The section titled 'Not Reported to the IRS‘ may contain cost basis information for Noncovered shares. This section may indicate the cost basis method for a transaction (See 1099B instructions for further information).What types of accounts receive a Form 1099-B?Taxable accounts for individuals, trusts, estates, partnerships, S corporations, and certainother institutions. Retirement plan accounts will NOT receive this form.6Return to main Tax Form Information page
1099-B Frequently Asked QuestionsBasis reportingHow does cost basis information pertain to Form 1099-B reporting?If you redeemed shares from a taxable account during 2019, this form may include cost basisinformation. Please note, cost information is required only for Covered shares purchased on orafter January 1, 2012 and only those shares are reported to the IRS. It is your responsibility tocalculate and report basis information to the IRS for any Non-covered shares (generally acquiredprior to January 1, 2012).How is basis reported?Reporting may contain up to five holding periods based on thelength of time the depleted shares were held and the basisreporting requirement of those shares. Reporting of basisinformation to the IRS depends upon the depleted sharedesignation as Covered, Non-covered, or Unknown.An IRS basis reporting requirement exists for Covered sharesacquired after 1/1/2012. Basis for Non-covered shares may beavailable (and reported on Form 1099-B as a courtesy), but it isnot reported to the IRS. You are responsible for calculating andreporting basis for shares with an Unknown designation.Return to main Tax Form Information pageHolding period(Basis reporting m(Non-covered)7
1099-B Frequently Asked QuestionsBasis reporting continued Multiple Holding PeriodsEach redemption or exchange transaction may contain shares with more than one holdingperiod. In the example below, one redemption depleted shares from three separate holdingperiods.Date of Acquisition12/05/201104/14/201208/06/2019Holding PeriodLong- TermLong- TermShort-TermReported to IRS?No, Non-coveredYes, CoveredYes, Covered Long-Term, Basis NOT reported to IRS for the shares acquired 12/05/2011 Long-Term, Basis reported to IRS for the shares acquired 04/14/2012 Short-Term, Basis reported to IRS for the shares acquired on 08/06/20198Return to main Tax Form Information page
1099-B Frequently Asked QuestionsCommon field descriptions1a Description of property, including share price and quantity sold1b Date of acquisition of the depleted shares; will be blank if shares acquired at different date areincluded in the transaction or if Box 5 shows YES1c Reports date shares sold1d Reports net proceeds from sale1e Reflects the cost or other basis of shares redeemed. If Box 5 shows YES, Box 1e may be blank1g Shows the amount of non-deductible loss in a wash sale transaction4 Reports backup withholding to include on your tax return as taxes withheld5 If this box displays YES, the shares redeemed were non-covered (cost basis not reported to the IRS)and boxes 1b, 1e, and 1g may be blank9Return to main Tax Form Information page
1099-DIV Frequently Asked QuestionsGeneral reportingWhat does Form 1099-DIV report?Form 1099-DIV contains reportable dividend, tax-exempt dividend, and capital gains earnedfrom distributions (cash or reinvested) on non-retirement accounts.What types of accounts receive a Form 1099-DIV?Taxable accounts for individuals, trusts, estates, partnerships, S corporations, and certainother institutions. Retirement plan accounts will NOT receive this form.I received a small capital gain or dividend distribution. Why haven’t Ireceived a Form 1099-DIV?You typically will not receive Form 1099-DIV if the total amount of dividends and capitalgains for an account is less than 10. Exceptions to the 10 threshold include situationswhere the distribution was subject to either a return of capital (Box 3), backup withholding(Box 4) or a foreign tax credit (Box 7).However, even if you do not receive Form 1099-DIV, you are generally required to report allof your taxable dividends and capital gains on your tax return.10Return to main Tax Form Information page
1099-DIV Frequently Asked QuestionsCapital gain and dividend distributionsWhat is a capital gain distribution?A Fund capital gain distribution can occur when a fund buys and sells stocks and othersecurities within the fund’s portfolio. This activity may create a net capital gain for the fund.The Fund passing through this capital gain distribution to it’s shareholders, subject to 1099DIV reporting for non-retirement accounts.How is a capital gain distribution different than a capital gain incurredwhen shares of my account are sold?A shareholder capital gain distribution occurs when the shareholder sells shares for a gain ina taxable, non-retirement, non-money market account.Do I have to report capital gains and dividends if they are reinvestedinto my non-retirement account?Yes, capital gains and dividend distributions are considered income the year they aredistributed, regardless of whether they are paid in cash or reinvested. The amount of thereinvested dividends and/or capital gains are then added to your account basis.11Return to main Tax Form Information page
1099-DIV Frequently Asked QuestionsCommon field descriptions1a Total ordinary dividends (including amounts from Box 1b), and short-term capital gains1b Qualified dividends that may be taxed at a reduced rate depending on your tax bracket2a Total long-term capital gains3 A return of your initial investment, also known as return of capital4 Backup withholding to include on your tax return as taxes withheld5 Dividends potentially eligible for the 20% qualified business income deduction7 Foreign tax paid11 Exempt interest dividends. If applicable, includes amount shown in box 1212 Amount of exempt-interest dividends subject to alternative minimum tax (AMT)12Return to main Tax Form Information page
1099-INT Frequently Asked QuestionsGeneral reportingWhat does Form 1099-INT report?Form 1099-INT reports bank deposit-type interest dividends on non-retirement accounts.What types of accounts receive a Form 1099-INT?Taxable accounts for individuals, trusts, estates, partnerships, and certain other institutions.Retirement plan accounts will NOT receive this form.13Return to main Tax Form Information page
592-B Frequently Asked QuestionsGeneral reportingWhat does Form 592-B report?Form 592-B reports State of California backup withholding on redemptions and long-termcapital gains.What types of accounts receive a Form 592-B?Accounts subject to federal backup withholding and also containing a California address.Common field descriptions1 Income subject to backup withholding3 Total backup withholding for the State of California14Return to main Tax Form Information page
1099-R Frequently Asked QuestionsGeneral reporting informationWhat does Form 1099-R report?Form 1099-R reports distributions from a Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, andcertain Qualified Plans. IRA trustee to trustee transfers are not reportable.What types of accounts receive a Form 1099-R?Individual retirement accounts (IRAs) or certain Qualified Plans accounts.15Return to main Tax Form Information page
1099-R Frequently Asked QuestionsCommon field descriptions1 Gross distributions including rollovers, conversions to a Roth IRA, or recharacterized IRAcontributions2a Taxable amount for distributions from IRAs is generally not computed4 Federal withholding7 Codes to identify the type of distribution (See 1099-R instructions for code descriptions)16Return to main Tax Form Information page
5498 Frequently Asked QuestionsGeneral reporting informationWhat does Form 5498 report?Form 5498 reports IRA contributions, rollovers, conversions, and recharacterizations.Trustee to trustee transfers are not reported on this form. Form 5498 also reports the fairmarket value (FMV) of an IRA as of December 31, 2019, for purposes of determiningRequired Minimum Distribution (RMD) amounts for the following tax year.What types of accounts receive a Form 5498?Individual retirement accounts (IRAs)Are reinvested capital gains and dividends reported on IRAs?Capital gains and dividends reinvested into an IRA are not reportable; However, distributionspaid in cash are reportable on Form 1099-R.17Return to main Tax Form Information page
5498 Frequently Asked QuestionsContributions for 2019 tax yearWhy are the SEP and SIMPLE IRA contributions made in 2019for the 2019 tax year not reported on Form 5498?IRS rules require calendar year reporting of contributions made to a SEP or SIMPLE IRA.While your investor statement may provide a breakdown of the specific tax year of yourSEP or SIMPLE IRA contributions, your 2019 Form 5498 is required to report thosecontributions were made during the calendar year of 2019, regardless of the tax year towhich those contributions apply.Maximum Contribution LimitsTaxpayers may contribute up to amounts shown below for the 2019 tax year. Forshareholders that reached age 50 by December 31, 2019, “Catch-Up” contributionamounts are provided. See IRS Publication 590-A (Traditional or Roth) orIRS Publication 560 (SEP and SIMPLE) for further Traditional and Roth eligibilityrequirements.IRA Type2019 Contribution Limit2019 “Catch-Up” ContributionTraditional IRARoth IRASEP IRASIMPLE IRA 6,000 6,000 56,000* 13,000 1,000 1,000N/A 3,000* The lesser of 25% of compensation or 56,000Return to main Tax Form Information page18
5498 Frequently Asked QuestionsCommon field descriptions1 Traditional IRA contributions made in 2019 and through April 15, 2020 for the 2019 tax year2 Rollover contributions3 Amount converted to a Roth IRA from a Traditional, SEP, or SIMPLE IRA4 Amount recharacterized from one IRA type to another5 Fair market value as of 12/31/20197 Type of IRA8 SEP IRA contributions made during the 2019 calendar year9 SIMPLE IRA contributions made during the 2019 calendar year10 Roth IRA contributions made in 2019 and through April 15, 2020 for the 2019 tax year11 Will be checked if a Required Minimum Distribution is required for specified tax year19Return to main Tax Form Information page
1099-Q Frequently Asked QuestionsGeneral reportingWhat does Form 1099-Q report?Distributions from a Coverdell Education Savings Account (CESA). Trustee to trusteetransfers are reportable on this form.What types of accounts receive a Form 1099-Q?CESAsCommon field descriptions1 Gross distributions including rollovers and transfers2 Only displays earnings made on excess contributions, otherwise not applicable for 20194 Reports if the distribution in Box 1 was a trustee to trustee transfer20Return to main Tax Form Information page
5498-ESA Frequently Asked QuestionsGeneral reportingWhat does form 5498-ESA Report?Form 5498-ESA reports contributions, rollovers and transfers into a CESA.What types of accounts receive a Form 5498-ESA?Coverdell Education Savings Accounts (CESAs)What is the maximum contribution limit?Contributions up to 2000 are allowed for the 2019 tax year. See IRS Publication 970 forfurther eligibility requirements.Common field descriptions1 CESA contributions made in 2019 and through April 15, 2020 for the 2019 tax year2 Rollovers and transfers made in 201921Return to main Tax Form Information page
1042-S Frequently Asked QuestionsGeneral reportingWhat does Form 1042-S report?Dividends and capital gains from taxable accounts, and distributions from IRA accounts paidto a foreign person or entity.What types of accounts receive a Form 1042-S?Form 1042-S is mailed to foreign persons or entities who received a Fund distribution ontheir taxable account or liquidated assets from a retirement account.22Return to main Tax Form Information page
1042-S Frequently Asked QuestionsCommon field descriptions1 Income code2 Gross income paid3 Chapter indicator (3 or 4)3a Chapter 3 exemption code3b Chapter 3 tax rate4a Chapter 4 exemption code4b Chapter 4 tax rate7a Federal tax withheld10 Total withholding credit13b Recipient’s country code13h Recipient’s governmental issuedID number (GIIN) if any23Return to main Tax Form Information page
Tax TopicsTopicPageBackup Withholding25Capital Losses26Conversions & Recharacterizations27Dividends from U.S. Government Obligations28Dividends Received Deduction (DRD)29Excess Contributions30Foreign Tax Credit31Gift Tax Exclusion32Qualified Charitable Distributions33Return of Capital34Schedule K-13524
Backup WithholdingGenerally, backup withholding applies on a taxable account when the Fund did not receiveeither a properly completed application or IRS Form W-9. Another reason is that the IRS mayhave instructed the Fund to withhold due to a TIN/Name mismatch on your account, or dueto your failure to pay federal taxes. The backup withholding rate is equal to the fourth lowestrate of tax on individual taxpayers. For 2019, a 24% rate applies.Section 3406(b) of the Internal Revenue Code requires backup withholding to occur uponcertain payments being made to a mutual fund shareholder, including dividends, short-termand long-term capital gains, and redemptions/exchanges.See IRS Publication 1281 for more information.25Return to main Tax Topics page
Capital LossesTaxpayers who redeemed mutual fund shares at a capital loss during the year may be able touse those losses to offset other capital gains or, in some cases, ordinary income. The IRS hascreated several rules in order to discourage loss-oriented selling. Two of these rules, washsales and long-term capital gain distributions, are detailed below.Wash salesIf you purchase shares of a mutual fund, including reinvested dividends or capitalgains, within 30 days before or after you redeemed shares of the same mutual fund fora loss, the redemption will be considered a “wash sale” and some or all of your capitalloss will be deferred. The amount of your deferred loss increases the cost basis of theshares purchased which created the wash sale. When those shares are subsequentlysold the deferred loss is then allowed. Please consult your tax advisor for moreinformation about wash sale rules.Long-term capital gain distributionsCapital gain distributions from a mutual fund are generally reported as long-termcapital gain regardless of how long you owned shares in a fund. However, if youreceived a capital gain on shares owned for less than six months, and subsequentlysold the shares at a loss, part or all of the loss on the sale of the shares that wouldnormally be considered short-term based on the holding period may berecharacterized as long-term instead. The amount of the loss equal to or less than thecapital gain distribution is the amount which will be recharacterized as long-term. Theamount of the loss greater than the capital gain distribution remains short-term.Return to main Tax Topics page26
Conversions & RecharacterizationsConversionA conversion occurs when you move assets directly from a Traditional, SEP, or SIMPLE IRA into aRoth IRA. Conversions are reported based upon the calendar year in which they are received.Recharacterization of a contributionRecharacterization of a contribution occurs when the type of contribution is changed from onetype (Traditional or Roth) to the other type, prior to the individual’s income tax return due date(including extensions).Regarding a Recharacterization of a Conversion: Section 13611 of the Tax Cuts and Jobs Acteliminated the ability, under Code section 408A(d)(6), to recharacterize a conversion to a RothIRA, effective for taxable years beginning 2018. For Roth conversions that occurred in 2017,taxpayers had until the 2017 tax return deadline of October 15, 2018 to undo the conversion.27Return to main Tax Topics page
Dividends from U.S. GovernmentObligationsSome states do not tax their residents on mutual fund income received that is earneddirectly from U.S. Government obligations. Short-term capital gain distributions, althoughtreated as ordinary income, are generally not eligible for state tax-exemption. A statementindicating the percentage of income your fund earned that was attributable directly to U.S.Government obligations may be included when you receive a Form 1099-DIV.28Return to main Tax Topics page
Dividends Received Deduction (DRD)A dividend received by a corporation due to stock ownership in another corporation is includedin its gross income. At year-end, that income is taxed to the corporation. When the income ispaid out to shareholders in the form of a dividend, it is again taxed to the shareholder. Whenthe dividend payment is made to a corporate shareholder and the distributee corporationsubsequently pays these earnings out to its shareholders, triple taxation of the earnings canresult. To help relieve this triple taxation, corporations are allowed a Dividends ReceivedDeduction (DRD) for the divid
capital gain distribution can occur when a fund buys and sells stocks and other securities within the fund’s portfolio. This activity may create a net capital gain for the fund. The Fund passing through this capital gain distribution to it’s shareholders, s
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