Liquidating dividend cost method speed dating events houston
Monetizing the investment after the DTL has grown large can trigger a large tax bill that (i) must be weighed against the benefits of monetization, and (ii) may limit the investor's strategic options with respect to the disposition of the stake.PNC Financial faced this dilemma in evaluating monetization options for its sizeable investment in Black Rock.The undistributed earnings give rise to a deferred tax liability ("DTL") payable when the earnings are ultimately distributed, or the investment is liquidated.Recall that taxes on dividend income may be offset by the Dividends Received Deduction ("DRD").
The concepts above are implemented in the following comprehensive example, where we assume a simplified P&L and balance sheet to focus on key takeaways, which are highlighted in yellow.
However, companies rarely pay "catch-up" dividends. In other words, a company is unlikely to distribute earnings in the future that it declined to distribute in the past.
So, undistributed earnings rarely qualify for the DRD because their future distribution is not expected.
If you don't, when you sell shares of that investment, you'll have to pick a method before you can complete the transaction.
Even if you've already selected—and even used—one of these cost basis calculation methods, you can change it for future sales whenever you want.* And you can apply those changes to just one fund or to all the funds within an account.