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Funds 104: Taxes on Mutual Fund Income

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1.
Capital gains distributions are taxed at your ordinary income tax rate.
Choose wisely. There is only one correct answer.
False. They are taxed at either the short-term or the long-term rate, whichever is applicable.
2.
You may be taxed on a transfer between mutual funds because the IRS sees the transfer as a dividend.
Choose wisely. There is only one correct answer.
False. You will be taxed on it because the IRS sees it as a capital gain, if one has been made.
3.
Which IRS tax form shows the proceeds of mutual fund share sales?
Choose wisely. There is only one correct answer.
1099-B. This form reports the sales of shares.
4.
Buying a mutual fund that has a very low turnover rate will reduce the number of _______.
Choose wisely. There is only one correct answer.
Capital gains. A lot of turnover will likely result in a lot of capital gains, which are normally taxable. If you want to reduce taxes, consider low-turnover funds.
5.
A capital loss is the return of your original investment back to you.
Choose wisely. There is only one correct answer.
False. A capital loss is a loss you suffer when you sell shares for less than the price you paid for them.