When a mutual fund distributes dividends, the dividends are deductible by the fund and the undistributed income is taxable to the fund.

Question

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When a mutual fund distributes dividends, those dividends are deductible by the fund and the undistributed income is taxable to the fund. This is because mutual funds are pass-through entities, meaning the income earned by the fund passes through to the investors and is taxed at their individual tax rates.

When a Mutual Fund Distributes Dividends, the Dividends Are Deductible