Do I need to pay tax on my 1099-B Gross Proceeds?

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Do I need to pay tax on my 1099-B Gross Proceeds?

Postby AndroAsc » Mon Mar 28, 2011 1:18 pm

I'm confused. I thought that Tax-Exempt bond MF were exempt from all Federal Taxes.

So why is it Vanguard sent me a 1099B indicating about $8000 worth of Box 2 (Gross Proceeds)?

Do I need to pay taxes on the $8000 - $(Original Price)?
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Postby AndroAsc » Mon Mar 28, 2011 1:33 pm

DSInvestor wrote:TaxExempt bond funds distribute income that is exempt from Fed tax. Capital gains are still taxable though.

Do you have a capital gain? Vanguard should have also sent you an average cost statement showing your gross proceeds and your cost basis of your long term and short term shares. The cost basis is the amount of your purchases and all dividend reinvestments.

Capital gain/loss = gross proceeds - cost basis.

If you have no capital gain, there will be no capital gains tax. If you have a capital loss, you may see some tax benefit as those losses can offset other gains or reduce ordinary income. Gain or loss, you have to enter the sell transactions LT and ST into your tax return.


Crap... so the capital gains of a tax-exempt municipal bond fund is taxable and the dividends of a tax-exempt fund is not?
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Postby DSInvestor » Mon Mar 28, 2011 1:38 pm

You didn't say which fund you sold but here's something from the prospectus of the Vanguard Intermediate Term Tax Exempt Bond fund VWITX:

Tax Information

The Fund’s distributions may be taxable as ordinary income or capital gain. A majority of the income dividends that you receive from the Fund are expected to be exempt from federal income taxes. However, a portion of the Fund’s distributions may be subject to federal income tax. A sale or exchange of Fund shares is a taxable event, which means that you may have a capital gain to report as income, or a capital loss to report as a deduction, when you complete your federal income tax return. Dividend and capital gains distributions that you receive, as well as your gains or losses from any sale or exchange of Fund shares, may also be subject to state and local income taxes.


Reading the prospectus before buying any investment will avoid "oh crap" moments like this.
Last edited by DSInvestor on Mon Mar 28, 2011 1:43 pm, edited 1 time in total.
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Postby AndroAsc » Mon Mar 28, 2011 1:42 pm

DSInvestor wrote:Did you read the prospectus for the fund? You didn't say which fund you sold but here's something from the prospectus of the Vanguard Intermediate Term Tax Exempt Bond fund VWITX:

Tax Information

The Fund’s distributions may be taxable as ordinary income or capital gain. A majority of the income dividends that you receive from the Fund are expected to be exempt from federal income taxes. However, a portion of the Fund’s distributions may be subject to federal income tax. A sale or exchange of Fund shares is a taxable event, which means that you may have a capital gain to report as income, or a capital loss to report as a deduction, when you complete your federal income tax return. Dividend and capital gains distributions that you receive, as well as your gains or losses from any sale or exchange of Fund shares, may also be subject to state and local income taxes.


Apparently, I did not. I was referring to Vanguard Short-Term Tax Exempt. Maybe they should rename it to Vanguard Short-Term Not-So-Tax-Exempt...
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Postby KyleAAA » Mon Mar 28, 2011 1:45 pm

Did you sell shares for a gain? Or was it the fund? Capital gains are never tax-exempt, regardless.
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Postby AndroAsc » Mon Mar 28, 2011 1:49 pm

KyleAAA wrote:Did you sell shares for a gain? Or was it the fund? Capital gains are never tax-exempt, regardless.


It's not going to matter significantly, since the NAV of short-term tax exempt hardly moves, so I'll end up paying a few dollars. I was using it as a place to transfer money on a monthly basis and then do quarterly investments, cause I thought tax-exempt means totally no taxes and free of complications.

Guess I'll just accumulate my monthly savings in my savings account, and have Vanguard pull it every quarter then! This way there will be much less paperwork with only one 1099-INT form. I don't want to scour for cost basis for the entire year!
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Postby Random Poster » Mon Mar 28, 2011 2:15 pm

AndroAsc wrote: . . . cause I thought tax-exempt means totally no taxes and free of complications.


Is there any "investment" that is entirely free of capital gains taxes and/or taxes in general?

Serious question, because I don't know what the answer is (although I suspect that the answer is "no").
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Postby jjjjj » Mon Mar 28, 2011 2:16 pm

FOR SOME REASON THE BROKERAGE HOUSES REPORT EVEN REPAYMENTS OF PRINCIPAL AS "GROSS PROCEEDS" YOU WILL, EITHER NOW OR AFTER YOU GET THE DEFICIENCY NOTICE, NEED TO REPORT THE PURCHASE DATE, COST{USUALLY THE "GROSS PROCEEDS"} JUST AS IF IT WERE A STOCK UPON WHICH YOU HAD NEITHER GAIN NOR LOSS.
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Postby jbaron » Mon Mar 28, 2011 4:03 pm

Random Poster wrote:
AndroAsc wrote: . . . cause I thought tax-exempt means totally no taxes and free of complications.


Is there any "investment" that is entirely free of capital gains taxes and/or taxes in general?

Serious question, because I don't know what the answer is (although I suspect that the answer is "no").

A zero coupon municipal bond of the state in which you pay taxes (assuming you don't sell it) or any asset located in a Roth IRA.

Jeff
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Postby grabiner » Mon Mar 28, 2011 8:42 pm

jbaron wrote:
Random Poster wrote:
AndroAsc wrote: . . . cause I thought tax-exempt means totally no taxes and free of complications.


Is there any "investment" that is entirely free of capital gains taxes and/or taxes in general?

Serious question, because I don't know what the answer is (although I suspect that the answer is "no").

A zero coupon municipal bond of the state in which you pay taxes (assuming you don't sell it) or any asset located in a Roth IRA.


A bond from your own state need not be a zero to be tax-free, since the interest is not taxable. (However, there are a few situations in which the interest, or the imputed interest on a zero, can make other things taxable; for example, the amount of Social Security which is taxed depends on your gross income, including tax-exempt income.)

Any asset which does not generate income and which you don't sell until your death is tax-free (except for estate tax); your heirs get a stepped-up basis on the day you die and can sell it for no capital gain. Common examples include your own house, collectibles, land which is not rented out, and stocks which do not pay dividends (although those stocks might eventually pay dividends or be redeemed for cash).

Anything in a Roth IRA, or HSA if you aren't in one of the few states which taxes them, is completely tax-exempt as long as you don't withdraw it in violation of the rules (premature withdrawals, or HSA withdrawals not used for medical expenses).

(edited to finish truncated paragraph.)
Last edited by grabiner on Tue Mar 29, 2011 8:15 pm, edited 1 time in total.
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Postby Random Poster » Tue Mar 29, 2011 10:30 am

grabiner wrote:Anything in a Roth IRA, or HSA if you aren't in one of the few states which taxes them, is completely tax-exempt as long as you don;


Please continue....
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