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Funds 104: Taxes on Mutual Fund Income

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1.
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.
2.
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.
3.
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.
4.
Which IRS form shows ordinary dividends?
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1099-DIV. Form 1099-DIV reports dividends.
5.
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.