Funds Beginner: Taxes on Mutual Fund Income

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
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.
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.
3.
When is the worst time to buy a fund, from a tax standpoint?
Choose wisely. There is only one correct answer.
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.
4.
Which IRS form shows ordinary dividends?
Choose wisely. There is only one correct answer.
1099-DIV. Form 1099-DIV reports dividends.
5.
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.