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Undistributed Capital Gain

Undistributed Capital Gain Definition

In the simplest terms, an undistributed capital gain is a situation where a company has made more money from investments and assets than it has paid out in dividends to shareholders. This non-distribution can be due to several factors, such as the company reinvesting its profits into the business. Or simply holding on to the extra cash. The result is that shareholders may receive only some of the benefits of the company’s profitability, as they would if those profits distribute in the form of dividends.

While this may not be ideal for individual shareholders, it can be positive for the company. By retaining more profits, the business can use that money to grow and expand, leading to increased value for the company and its shareholders in the long run.

Where do I report undistributed long-term capital gains?

You must report an undistributed long-term capital gain on Form 1099-DIV. This report is the same form used to report capital gains and losses from investments such as stocks, bonds, and mutual funds.

Are undistributed earnings taxable?

Yes, undistributed earnings are taxable. As with any other form of income, shareholders must include dividends that weren’t included in their annual tax returns. This process can be complex, but it is essential to understand these earnings and their potential tax implications.

What are examples of undistributed profits?

Some examples of undistributed profits include:

– The extra money a company makes from its investments and assets, over and above the amount paid out in dividends to shareholders.

– The money a company retains to grow and expand its business.

– Company profits that don’t pay dividends due to factors such as reinvestment or holding on to the cash.

Shareholders should be aware of undistributed profits and their potential tax implications, as they can significantly impact investment decisions. By understanding what these earnings are and how they are taxed, investors can make more informed choices about where to put their money.

Next Steps

Wondering how these capital gains could benefit your current situation? Calculate your potential return on investment with our CRT calculator. Or learn more definitions today!

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