Q&A
>We have several
>investments, and one in particular is providing about $8,000 in re-invested
>dividends ( a govt bond fund - mostly mortgages ). We end up paying a fair
>amount of taxes on these.
>My question is: What can we do to reduce the taxable income from this
>re-invested dividend.
Some more information might be helpful. What's your time frame?
Do you need this income? Are you willing to take on more market risk?
For instance, one answer might be to move the money to a growth equity
fund with low turnover (index funds spring to mind) which produce
relatively little in the way of taxable distributions. That way, most
of the gains would remain unrealized and thus untaxed until you choose
to sell and realize some gain.
>The fund is quite large now and I have no idea what
>the cost basis is but I expected I would incur large gains on any sale.
You may want to find out. I'd expect, since it's a bond fund,
that the cost basis is close to the value of the fund. You've been
paying taxes all along on those reinvested dividends, and they're
part of your cost basis, just as if you had sent the fund a check
every so often instead of automatically reinvesting. You can
probably move the money with little additional tax penalty.
>Can we some how get this taxed at my childs tax rate insted of our 31%
>rate?
Easily done, if you gift the fund to the child. See the FAQ
on the Uniform Gift to Minors Act, and ask your fund family about
it. Of course, that means they might blow it all on a new Ferrari
when they turn 18 (or 21), since it's their money and not yours.
--
L. Drew Davis drewd@nortel.ca
You might very well think that; I couldn't possibly comment.
(
geocities.com/vyque)