Estimated year-end distributions for Vanguard funds

Mona

Here is the link for estimated dividend income.

https://personal.vanguard.com/us/insights/article/estimated-yearend-distributions-12072012

In the chart lets look at VGELX for which I have a few questions.

1. Vanguard indictaes the estimated dividend income is $2.25 per share. Lets assume one has 500 shares. That means the estimated dividend income is $1,125. In the column next to estimated dividend is a column "Estimated QDI" and in the case of VGELX, the number is 82%. Does that mean that 82% of $1,125 or $922.50 is the qualified dividend? Also, is the $922.50 taxed at15% for all except one in a 10% or 15% tax bracket (in that case the tax is 0)?

2. Can a qualified gain ($922.50) be offset by a short-term or long-term capital gain carry forward loss? My guess is no, because regardless that it is "qualified", it is still Income, which can't be offset by a capital loss.

Thanks for your thoughts.

Mona

fundalarm

1. your calculations are correct. and your assumption is correct. maximum tax rate on qualified dividends is 15% in 2012. (scheduled to expire dec 31st and move to ordinary tax rates if no deal passes.)
2. "qualified dividends" is different from "capital gains". the latter could be long-term (also taxed at 15% in 2012 and scheduled to increase to 23.8% in 2013, if no deal is reached); or short-term (always has been and will be at your ordinary tax rate.) These capital gains, whether long or short term, could be offset by capital losses -- dollar for dollar. If your losses exceed your gains in any calendar year, you can ofset up to $3000 against ordinary income and carry over the rest.

two more things, i am not a tax advisor and this is not advice. also, whatever is vanguard's estimate is indeed just an estimate. the final numbers will be reported in tax form next year.

Investor

Fairmark site is pretty useful for a lot of tax questions.

http://www.fairmark.com/capgain/capgain.htm

Here on this page:

Capital losses are used first to offset capital gains. If there are no capital gains, or if the capital losses are larger than the capital gains, you can deduct the capital loss against your other income — up to a limit of $3,000 in one year.

Basically, if you do not have enough capital gains to offset, the losses can offset your income. This is my experience while using tax software as well.

Here is another reference:

http://www.bankrate.com/finance/money-guides/capital-losses-can-help-cut-your-tax-bill-1.aspx

• Short-term losses counterbalance those expensive short-term gains. What's left at the end of Part I of Form 8949 is the net short-term capital gain or loss. If there were no gains, then obviously the net would equal the total loss.
  
• Long-term losses are applied to long-term gains. The result, at the end of Part II of Form 8949, is the net long-term capital gain or loss. Again, if you only have a loss, then the net is a negative number.
  
• Next, you combine the short-term and long-term results on Schedule D. At this point, a loss in one section can offset a gain in the other section. For example, if you have a net short-term loss of $1,000 and a net long-term gain of $1,200, then you'll pay tax on only $200.
  
• If there's still a loss, you can deduct up to $3,000 from other income.
  
• If you had a really bad year and ended up with a net loss of more than $3,000, you can carry forward the leftover portion to next year's taxes. The unused loss can be applied to next year's gains as well as up to $3,000 of earned income. A big loss can be used as a deduction indefinitely -- another important reason to keep good records.