Do we have to report taxable amount of Dividend and Gain on 1099-DIV on an undistrubuted MF account? If that so, do we have to pay tax on possible gain again when we need to sell it later on

[Bsch4477]

If you are referring to a mutual fund distribution, yes, the dividends and capital gains generated by the fund must be reported and taxed. That is true whether you received the distribution in cash or it was reinvested. If you sell shares at a gain in the future you will be taxed on that gain at capital gain tax rates. 

[HelenC12 · Accepted solution]

Yes, you have to report the income on Form 1099-DIV from your Mutual Fund (MF). It was distributed to you and you instructed the MF to reinvest the dividends and capital gains back into your account, when you set up the account.  

Yes, you have to pay taxes on any gains you have when you sell your MF. You'll be able to reduce your gain by your cost or adjusted basis in the MF.

[TNV]

Thanks, Champ.

Does that sound we pay tax twice on the gain now and later?

Ex:

We paid tax on the reinvested amount of

      1st year gain:     $100

      2nd year gain:   $400

      3rd year gain:    $500   

            Sub total:  $1,000    

on a $10,000 investment.

Then we decide to sell it now, the additional gain is $100,  do we just pay tax on the additional gain of $100, or they will tax us on the total gain of $1,100?

I'm new to investment, the Pub 550-Investmentment & Expenses is pretty complicated to undertand.

[TNV]

Thank you, Expert.

I'll try to sell some to see how they atxit. Your explanation is very easy to understand.

Have a wonderful day!