Investing & Taxes

Taxes can have a big impact to your bottom line, so it's important to understand how tax rules and concepts affect your investments.

  • Tax Provisions
  • Capital Gains & Distributions

The Tax Cut and Jobs Act passed in late 2017 changed many of the tax provisions in the tax code, in an effort to simplify the tax code. Below, we provide a summary of the provisions most relevant to mutual fund investors. Please note that some of these provisions will sunset after 2025, which means those provisions revert back to "pre-Act" rates after that date, unless Congress acts again to extend them or make them permanent.

Federal Individual Income Tax Rates

The income tax rate brackets have been reduced, with the new top rate of 37%. The income ranges for each bracket will be indexed for inflation going forward, and the reduced income tax rate brackets will sunset after 2025.

Related Provisions:

  • The marriage penalty is permanently repealed for taxpayers in the 10%, 12%, 22%, 24%, and 32% income brackets. The standard deduction for married taxpayers in those brackets who are filing jointly is now 200% of single filers. This provision will sunset after 2025.
  • Changes to taxation of unearned income by minors (aka "Kiddie Tax"). See Children's Federal Taxation Guidelines under UTMA for more information. This provision will sunset after 2025.
  • Backup withholding will be 24%. Backup withholding generally applies to taxpayers whose Taxpayer Identification number does not match IRS records. It also applies to taxpayers who have under-reported their income. Individuals subject to backup withholding may also be subject to state backup withholding. This provision will sunset after 2025.
  • Reduced rates for Long-term capital gains and qualified dividend remain the same, but amount threshold breakpoints for each reduced rate were added based on tax filing status, and will be adjusted for inflation going forward. For more information, including rates and breakpoints, please select the Capital Gains & Distributions tab above.

Other Tax Situations

Alternative Minimum Tax (AMT)

Estate, Gift and Generation Skipping Tax Exemptions

Qualified Charitable Distributions

Recharacterizing a Roth Conversion

In-Plan Roth Conversions

Net Investment Income Tax

Coverdell Education Savings Account (CESA) Limits

Fund distributions can generate questions, especially at tax time. Mutual funds must distribute at least 98% of their annual income to investors for the funds to avoid taxation. Learn about four types of income funds may distribute based on their investments.

Keep in mind, the amount of a distribution can increase when the dividend payments or profits increase. A fund's capital gain distribution, however, is not necessarily a reflection of its overall performance.

Long-Term Capital Gain Distributions

Ordinary Income Distributions

Qualified Dividend Distributions

Tax-Exempt Dividend Distributions

Return of Capital Distributions

How You Are Taxed

Distributions generally are subject to federal income taxes and may be subject to state and local taxes, whether you reinvest them or take them in cash. The tax status of a capital gain distribution is determined by how long the mutual fund held the underlying security that was sold, not by how long you have been invested in the fund.

Note: At the time distributions are paid, the type of income may not be fully known. The distribution classification for tax purposes will be determined at the end of each Fund's tax year and appear on Form 1099-DIV. For this reason, amounts shown on your statements and your tax forms may differ.

Long-Term Capital Gains

Ordinary Income Distributions

Qualified Dividend Distributions

Tax-Exempt Dividend Distributions

Foreign Tax Paid

Return of Capital

Taxation of Capital Gains and Qualified Dividends*

The Tax Cut and Jobs Act changed the income tax amount breakpoints for each of the reduced capital gain rates, and will now be indexed for inflation.
Long Term Rate Married Filing Jointly* Single*
0%  $0 to $78,750 $0 to $39,375
15% $78,251 to $488,850 $39,376 to $434,550
20% More than $488,851 More than $434,551

*The changes made by the Tax Cut and Jobs Act will sunset after 2025, and the income rates will revert to pre-2018 income tax rates and amount thresholds, adjusted for inflation.

IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.