Funds Beginner: Taxes on Mutual Fund Income

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1.
Income from municipal bond mutual funds may be taxable on the state level.
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True. In some cases, they are taxable on the state level.
2.
You may be taxed on a transfer between mutual funds because the IRS sees the transfer as a dividend.
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False. You will be taxed on it because the IRS sees it as a capital gain, if one has been made.
3.
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.
4.
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.
5.
Which IRS form shows ordinary dividends?
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1099-DIV. Form 1099-DIV reports dividends.