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Funds 104: Taxes on Mutual Fund Income

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1.
Buying a mutual fund that has a very low turnover rate will reduce the number of _______.
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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.
2.
Which IRS tax form shows the proceeds of mutual fund share sales?
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1099-B. This form reports the sales of shares.
3.
When you exchange mutual fund shares from one fund to another in a fund family, it is a tax-free exchange.
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False. An exchange is considered a sale and purchase for tax purposes, except in qualified retirement plans.
4.
A capital loss is the return of your original investment back to you.
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False. A capital loss is a loss you suffer when you sell shares for less than the price you paid for them.
5.
The _______ is what you earn when you sell mutual fund shares at a profit.
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Capital gain. The other two are earned when the fund, not you, makes a profit.