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Funds 104: Taxes on Mutual Fund Income

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1.
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.
2.
When is the worst time to buy a fund, from a tax standpoint?
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Right before a fund makes a distribution. If you buy a fund just before it makes a distribution, you'll pay taxes on that distribution, even though you haven't enjoyed any of the appreciation that led to that distribution.
3.
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.
4.
Capital gains distributions are taxed at your ordinary income tax rate.
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False. They are taxed at either the short-term or the long-term rate, whichever is applicable.
5.
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.