Which of the following is true about mutual funds and taxes?

Question

Quizplus · Accepted Answer

Investment companies are required by law to send each shareholder a year-end statement that specifies how much each received in income dividends and capital gain distributions. This statement is needed to accurately report the income on your federal tax return. Option A is incorrect as capital gain distributions are taxed as long-term or short-term depending on how long you held the shares. Option B is also incorrect as income dividends are only taxed when they are received by the shareholder, which can be monthly or annually depending on the fund. Option D is incorrect as capital gains distributions are reported on your federal tax return. Option E is incorrect as taxes cannot be completely eliminated, but they can be deferred if you hold your mutual fund shares in a tax-advantaged account like a 401(k).

Which of the Following Is True About Mutual Funds and Taxes