Because a mutual fund actually holds the underlying securities in
its name, the mutual fund pays
several types of dividends and distributions that the mutual fund has received on the underlying securities. You
must report all mutual fund dividends and distributions, including dividends
reinvested in the mutual fund, on your tax
return. Your mutual fund will
send you Form 1099-DIV. Your mutual fund will also send you instructions on where to enter the
tax information from the Form 1099-DIV onto your tax
return.
The ordinary dividends from a
mutual fund are entered on Form 1040, Schedule B, Line 5. This figure is then carried to
Form 1040, Line 9.
Mutual fund capital gains distributions are entered on
Line 13 of Form 1040, Schedule D. Capital gain
distributions are paid by a mutual fund and certain investment companies from their net
realized long term capital gains. Mutual fund capital gain distributions are always reported as
long term capital gains. Report on your tax return any capital gain distribution that
a mutual fund credited to you even if you did not actually receive it in cash.
Mutual fund non taxable distributions that are a return of capital reduce your cost basis
in the mutual fund and
are not taxable on your tax return until your basis is reduced to zero.
Any foreign tax paid by the
mutual fund will be indicated on Form 1099-DIV in boxes 6 and 7. You may
take a tax credit or tax deduction on your tax return for foreign tax paid by your mutual fund.
Investment
Income and Expenses, and IRS 
