Introduction to Taxes on Mutual Fund Income

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After reading this tutorial, you will recognize what is and is not taxable and what IRS forms you will need to fill out.

What you will learn

  • What Income in a Mutual Fund Is Taxed?
  • Which Distributions from Mutual Funds Are Not Taxed?
  • A Mutual Fund Exchange Is a Taxable Event
  • Tax Forms for Mutual Fund Income
  • Avoiding Overtaxation in Your Mutual Funds

What do you know?

Introduction to Taxes on Mutual Fund Income

As you are painfully aware, whenever you make money, the government usually wants a cut of the action. Your mutual fund earnings are no exception.

Mutual funds provide one of the most convenient ways for many people to invest and yet have one of the most complicated taxation structures. Some mutual fund distributions are taxable while others are not. Redeeming mutual fund shares is a taxable event, but sometimes you might have a capital loss even though it appears that you made money and vice versa.

Then there are informational returns: 1099-B, 1099-DIV, etc. It can be quite confusing. The keys to understanding all of this are careful recordkeeping and knowing the terminology.