Khaas Baat : A Publication for Indian Americans in Florida



By Kamlesh H. Patel, CPA

Buying and selling securities is hard enough, but investors shopping for a good mutual fund have something else to worry about: ex-dividend dates. Not understanding how these work can bring a nasty surprise come tax time.

Unlike stocks, a mutual fund is required to distribute its annual income to shareholders. These distributions are often taxable in the form of interest, dividends and capital gains. Each year, fund trustees pick an official date on which all current shareholders will be eligible for the annual distribution. This date is the ex-dividend date.

Is owning shares on the ex-dividend date always a good thing? Not necessarily. A mistake some investors make is buying a fund just before the ex-dividend date, causing them to receive a taxable distribution right off the bat. The problem is that the price of the mutual fund drops by the amount of distribution. Since the price of the fund shares before and after a distribution reflect the amount of the dividend, the investor is paying income tax on part of his own purchase price. This doesn’t mean that buying immediately before the ex-dividend date is always bad; it just means that investors should be aware of this date.

Just as buying a fund before the ex-dividend date might be something to avoid, selling a fund before this date could be a tax-smart move. Selling appreciated shares that you’ve owned for a year or more could produce income taxed at the favorable long-term capital gains rate - as opposed to receiving distributions taxed at ordinary tax rates.

Keep in mind that if you own a mutual fund in a qualified retirement account, the annual distribution will not be subject to immediate taxation, making the tax aspect of your purchase timing a moot point.


What will happen to your business if you die, retire, or become disabled? If you are a small business owner, you need a means for the transfer of that business in the event something happens to you. With a “buy-sell” agreement, you are able to plan for many contingencies over which you would otherwise have little control. A buy-sell agreement should establish a price and method of succession.

The traditional buy-sell agreement is a contract between the business entity and all the entity’s co-owners. The agreement typically covers valuing the business, laying down triggering events that would bring the terms of the contract into effect, and defining the transfer of ownership. There are many advantages in drafting a buy-sell agreement, including the following:

Something as valuable as the ownership and management of a small business should not be left to chance. The agreement needs to satisfy all parties involved, including the IRS requirements for tax purposes.


With all the talk this year about medical costs and government benefits, it is easy to lose sight of the basic health care tax perks already provided by Congress.

As in years past, taxpayers who itemize deductions on their tax return can deduct medical costs exceeding 7.5 percent of their adjusted gross income (AGI). Here’s a tip: It doesn’t matter when the treatment or prescription was received; what counts is when you paid the bill. So if you anticipate higher health care costs in the near future, try to consolidate the payment of those costs into one calendar year to maximize your chances for a deduction.

What types of costs qualify for the medical deduction? Eligible expenses include those required to treat, prevent, or mitigate a disease or other medical condition. Such costs include prescription drugs, hospital bills, and premiums paid on health and dental insurance. And these costs can be incurred on behalf of yourself, a spouse, or a dependent. Just be sure to keep all applicable receipts to substantiate your expenses.

A deduction often overlooked is travel expenses incurred to receive medical care. If traveling by car, you can either deduct the actual out-of-pocket expenses or use the standard medical mileage rate of 23¢ a mile.

For most taxpayers, actual medical costs usually fall far short of the 7.5 percent threshold, but there is still a tax-favored way to pay your health care expenses. Health savings accounts (HSAs) allow taxpayers to deduct payments made into these accounts, up to an annual limit of $3,100 for singles and $6,250 for families. And you do not need to itemize to take advantage of an HSA deduction. Later on, money can be taken tax-free from the accounts to pay for qualified medical bills. Flexible spending accounts (FSAs) let you set aside money that can be withdrawn tax-free to pay medical expenses. Check with your employer to see if your company already offers such plans.

Kamlesh H. Patel, CPA, can be reached at (813) 949-8889 or e-mail kpaccounting@verizon.net or kpinsurance@verizon.net

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