Mutual funds have potential tax downside

Article Abstract:

Mutual funds have become a popular investment vehicle despite the potential tax implications of such an investment. However, many individuals are unwittingly investing in mutual funds without realizing that they may be deriving less desirable tax outcomes than if they directly hold shares of the underlying stocks. Since managers of mutual funds are paid according to before-tax returns instead of after-tax returns, and are therefore less inclined to consider taxation when supervising their funds, shareholders bear the responsibility of examining their tax position. Shareholders are taxed for distributions if the mutual fund is kept in a taxable account. Investors should realize that a long-term capital gain derived from a mutual fund is treated and taxed as a capital gain dividend. Moreover, the passage of the Tax Relief Act of 1997 has made long-term capital gains preferable to short-term capital gains because the tax rates are lower.

Management, Investments, Mutual funds, Capital gains tax

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Premiums paid to wholly owned subs are deductible

Article Abstract:

Three Tax Court cases have given taxpayers more room for deducting the premia paid by parent corporations to wholly owned insurance subsidiaries. The Tax Court held in the three cases, AMERCO, The Harper Group, and Sears Roebuck & Co (96 TC Nos. 3, 4, and 5, respectively), that transactions between the parents and the insurance subsidiaries were valid insurance arrangements regardless of the fact that the subsidiaries were wholly owned, and allowed the premia to be deducted. The criteria used to determine whether the insurance arrangements were valid included an actual shifting of risk, determination of premia at arms length, and the separateness of the insurer and the insured.

Cases, Insurance, Subsidiary corporations, Subsidiaries, Sears, Roebuck and Co., Tax courts, Amerco, Harper Group Inc.

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