This is easy said, but not really advantageous for me. To invest in a tax shelter trust such as MVO, I would have to distribute the amount form my IRA to my individual account. Then I could buy units of the trust with my individual account. The bottom line is 1. My IRA distribution would be taxable. My distribution is just enough so I stay under the tax. 2. The money in my individual would become taxable, once I sale the unit of the trust. The dividend may not be, but the plus value would. So far, since I retired, I am tax free, and want to keep it that way. All in legality. My IRA is up in double digits since 2007, cannot complain.
Thanks for posting this. New investor to the Trust this year, held in a taxable account at TD thus I am learning about the taxation of this investment.
I am sure there has to be more people then me slightly confused by the taxation of this, so I was hoping perhaps other could post questions/provide insights here.
TD did send out a consolidated 1099 in mid-Feb 2012 and it does appear to correctly reflect the returns of principal on 1099-B (verified calculation based on the Tax Booklet table G), the expenses (per Booklet table D) and the reduction in basis (per Booklet table E). However it did not report anything regarding the income piece.
I assume it's possible I might not get something from TD. I'd like to confirm though, in theory, I should have received a 1099-INT for the income piece? Or is it a 1099-OID? Or does that distinction not matter, since it would flow into the same line on my 1040. Ultimately, I'd also like to be sure that this income piece would not show up on a 1099-MISC as royalty income.
I believe the distinction of whether it's royalty income vs interest income on the 1040 will determine if I would have to file a Colorado State Tax Return (I am not a CO resident). Looking at their Form 104, it appears as if interest income would only be reported to Colorado if it was earned while a person was resident there (which I never was) where as royalty income would have to be reported if it was earned on a Colorado Source of which the Booklet states is the case.
And finally, to be clear, this Tax Booklet is the ultimate end-all-be-all on this matter, correct? There will not be anything additional sent out? And in those cases where your broker does not report this at all or reports its incorrectly on a 1099, I should use my calculations per the Booklet for tax reporting purposes?
Sorry for being long-winded, if someone has any insight to the questions I have it'd be appreciated.
Yes, the tax booklet is the ultimate reference. The brokers often get it wrong on the 1099 for this trust as well as WHX (a similar one). But if they got the return of capital part correct, I would have thought they would have the rest of it correct too. Are you sure you didn't miss a section on the 1099 (the 1099-OID section, for example). There are usually revisions to the 1099s - I pretty much ignore the first couple of 1099s I get and only start to really look at it when I get one in mid March when it is approacking the final draft. Yes, the missing component should be OID interest. That's how I declare it and often I enclose a note with my return explaining that the 1099 is wrong.
Don't think you'd have to file state taxes for MVO (unless you had a really huge position).