What are Capital Gain Distributions? How is that figured?

[jstammer]

I know the amount is indicated on my 1099-DIV, but I don't know what that amount is based on.

[slowarm]

Capital Gains are the "profit" you made on the sale of a stock, a mutual fund or an ETF.

They are calculated by taking the sell price less (minus) the purchase price (price you paid to buy) of the stock, mutual fund or ETF.   Basically it's what you made in the trade (how 'bout that  - it rhymes).

[ColeenD3]

A capital gains distribution is a payment by a mutual fund or an exchange-traded fund (ETF) of a portion of the proceeds from the fund's sales of stocks and other assets. It is the investor's share of the proceeds from the fund's transactions. It is not a share of the fund's overall profit. 

CGD

[SteamTrain]

On a 1099-DIV form , the Cap Gain distributions are the capital gains that a Fund you owned, paid out during the year.  (ETF's too?)

Mutual Funds that you had bought at some time in the past, do a lot of trading in various securities all during the year, without any involvement on your part.  But the IRS expects them to pay out their gains to the owners of that fund every year.  Many funds just pay out the year's gains in Nov-Dec every year....but a few funds may payout some $$ a couple times during the year.

The Brokerage or Fund company that holds the shares for you, is required to show the total of all those gains paid out during the year on a 1099-DIV form.  Those gains are potentially taxable, even if you automatically re-invested the distribution into the same fund(s).

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Now, if you  sell the actual shares of a Fund itself, or or any other security..., those gains (if any) will be shown and reported separately on a form 1099-B/8949.

[Chaulk]

I thought we are supposed to do something every December before Capitol gains are distributed to save on taxes or am I wrong?

[Opus 17]

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@Chaulk wrote:

I thought we are supposed to do something every December before Capitol gains are distributed to save on taxes or am I wrong?

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That depends on what kind of investor you are.  Most people are not knowledgeable enough to actively manage their investments, and should just buy good quality stocks or mutual funds, and hold them until they need the money.  Trying to buy and sell and time the market is dangerous and most people don't have the time to dedicate to learn enough to do it well.

If you are really into buying and selling and trading and being an active investor, then there might be things you can do to reduce your taxes.   For example, if you ABC stock that has lost money and XYZ stock that has gained a lot in value, you might sell your position in ABC before 12/31 to create a loss, and then also sell XYZ for a profit, and the loss will offset the gain so you don't have a net taxable gain.  

But you need a pretty big portfolio for these opportunities to come up, and you need to know a lot about stocks and investing.  The fact that you are even asking the question suggests you don't know enough about investing to try and get this fancy with your buys and sells.  If you are mostly a buy and hold investor, there is really nothing you need to do or should do.  Your portfolio may have some capital gains this year (mainly if the mutual funds you owned sold some of their positions) and you will get a 1099-B, and add it to your tax return.